IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance is the IFRS Accounting Standard that establishes how entities recognize, measure, present and disclose government grants and other forms of government assistance. It explains the recognition criteria, including the requirement for reasonable assurance that grant conditions will be fulfilled and the grant will be received.
IAS 20 also covers grants related to assets and income, non-monetary grants, forgivable loans and below-market government loans. Furthermore, it outlines the accounting treatment for grant repayments and the disclosure requirements in financial statements. This guide explores IAS 20 with practical explanations, accounting treatments, journal entries and examples to help you understand its key requirements.
Last Updated – November, 2026
IFRS Accounting Standards Guide
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance tells you when to recognise a government grant, how to measure and present it, what to do when it must be repaid, and what to disclose. This guide explains every requirement in plain English, with worked journal entries, decision flowcharts and a disclosure checklist.
IAS 20 is the IFRS Accounting Standard that governs how an entity accounts for government grants and discloses other forms of government assistance. A grant is recognised only when there is reasonable assurance that the entity will comply with its conditions and that the grant will be received. It is then recognised in profit or loss on a systematic basis over the periods in which the entity expenses the costs the grant is meant to compensate.
Key takeaways
- Two gates before recognition: reasonable assurance of compliance with conditions and of receipt. Receiving cash alone does not prove the conditions are met.
- Income approach, not equity: grants go through profit or loss. They are not credited directly to equity.
- Match the cost: recognise the grant in the same periods as the related expenses, usually over an asset’s depreciation life.
- Asset grants have two accepted presentations: deferred income, or deduction from the asset’s carrying amount. Profit is the same either way.
- Repayment is a change in accounting estimate under IAS 8, not a prior-period error.
- Tax incentives are out of scope. They fall under IAS 12.
IAS 20 at a Glance
IAS 20 is one of the older standards in the IFRS library, yet it affects a wide range of entities; manufacturers receiving capital subsidies, airlines and hospitality groups that received payroll support, farms, renewable-energy developers, research-intensive businesses and borrowers with subsidised loans. The table below summarises the essentials.
| Item | Detail |
|---|---|
| Full title | IAS 20 Accounting for Government Grants and Disclosure of Government Assistance |
| Issued | April 1983 by the International Accounting Standards Committee (IASC); adopted by the IASB in April 2001 |
| Original effective date | Periods beginning on or after 1 January 1984 |
| Objective | To prescribe the accounting for, and disclosure of, government grants, and the disclosure of other forms of government assistance |
| Core recognition rule | Recognise only when there is reasonable assurance of compliance with conditions and of receipt (paragraph 7) |
| Core measurement rule | Recognise in profit or loss on a systematic basis over the periods the related costs are expensed (paragraph 12) |
| Related interpretation | SIC-10 Government Assistance-No Specific Relation to Operating Activities |
| Recent consequential amendments | IFRS 13, IFRS 9 and IFRS 18 Presentation and Disclosure in Financial Statements (issued April 2024) |
| Open IASB project | The IFRS Foundation standard page currently lists no related active project |
Scope of IAS 20 and What Is Excluded
IAS 20 applies to accounting for, and disclosure of, government grants, and to the disclosure of other forms of government assistance. Four areas sit outside the standard (paragraph 2):
- Changing prices. Special problems of accounting for grants in financial statements that reflect the effects of changing prices.
- Tax benefits. Assistance delivered through taxable profit or tax liability, such as income tax holidays, investment tax credits, accelerated depreciation allowances and reduced tax rates. These are accounted for under IAS 12 Income Taxes.
- Government ownership. Government participation in the ownership of the entity.
- Agriculture. Government grants covered by IAS 41 Agriculture.
A payroll subsidy paid in cash is an IAS 20 grant. A tax credit claimed through the tax return is usually an IAS 12 item. The label “grant” or “credit” in local law does not decide the standard. The way the benefit is delivered does.
Key Definitions in IAS 20
Getting the definitions right prevents most application errors. Paragraph 3 defines the terms below, here paraphrased.
| Term | Meaning in plain English |
|---|---|
| Government | Government, government agencies and similar bodies, whether local, national or international. |
| Government assistance | Action by government designed to give an economic benefit specific to an entity or a range of entities qualifying under certain criteria. It excludes benefits that arrive only indirectly through general trading conditions, such as building infrastructure in development areas. |
| Government grants | Transfers of resources to an entity in return for past or future compliance with conditions relating to its operating activities. They exclude assistance that cannot reasonably be valued and transactions with government that cannot be distinguished from normal trading. |
| Grants related to assets | Grants whose primary condition is that the entity purchases, constructs or otherwise acquires long-term assets. Secondary conditions may limit the type or location of assets, or the holding period. |
| Grants related to income | All government grants other than those related to assets. |
| Forgivable loans | Loans where the lender undertakes to waive repayment if prescribed conditions are met. |
| Fair value | The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (IFRS 13). |
Grants are sometimes called subsidies, subventions or premiums. IAS 20 treats them all the same way provided they meet the definition.
Government Grant Recognition Criteria Under IAS 20
Paragraph 7 sets two cumulative conditions. A grant, including a non-monetary grant at fair value, is not recognised until there is reasonable assurance that:
- the entity will comply with the conditions attached to the grant; and
- the grant will be received.
Receiving the grant does not by itself prove that the conditions have been or will be met (paragraph 8). A cash receipt before conditions are satisfied is usually a liability or deferred income, not income. How the grant is received does not change the accounting: cash and a reduction of a liability owed to government are treated alike (paragraph 9).
Recognition decision flowchart
Use this sequence for any government transfer or benefit.
Accounting for Government Grants – The Income Approach
Paragraph 12 requires grants to be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs the grant is intended to compensate. The standard describes two theoretical routes and then chooses one.
Capital approach (rejected)
Treats a grant as a financing device, recognised outside profit or loss because no repayment is expected and it is not “earned”.
Income approach (required)
Grants come from a source other than shareholders, are rarely gratuitous, and are earned by meeting conditions. They therefore pass through profit or loss.
Recognising grants on a cash-receipts basis breaches the accrual assumption. It is acceptable only where no basis exists for allocating the grant to periods other than the one in which it is received.
How to find the right period
- Grants for specific expenses: recognise in the same period as those expenses.
- Grants for depreciable assets: recognise over the periods, and in the proportions, in which depreciation is recognised.
- Grants for non-depreciable assets with obligations: recognise over the periods that bear the cost of meeting the obligations. A grant of land conditional on erecting a building may be recognised over the building’s life.
- Package grants with several conditions: split the grant and allocate parts on different bases where the conditions give rise to costs in different periods.
Immediate recognition
Where a grant becomes receivable as compensation for expenses or losses already incurred, or as immediate financial support with no future related costs, it is recognised in profit or loss of the period in which it becomes receivable (paragraphs 20–22). Disclose it so users can understand its effect.
Accounting for Non-Monetary Government Grants
Governments sometimes transfer land, buildings or other resources instead of cash. Paragraph 23 says it is usual to assess the fair value of the asset and account for both the grant and the asset at that amount. IAS 20 also permits an alternative: record both at a nominal amount. Whichever you choose, apply it consistently and disclose the policy.
When fair value is used, apply IFRS 13 for the measurement. The grant is then presented under the asset-grant rules in the next section.
Grants Related to Assets – Accounting and Presentation Methods
Paragraph 24 allows two methods in the statement of financial position. Both are acceptable alternatives, and the entity must apply its choice consistently.
| Feature | Method A: deferred income | Method B: deduct from asset |
|---|---|---|
| Balance sheet | Asset at gross cost; grant shown as a separate deferred income liability | Asset shown net of the grant |
| Profit or loss | Full depreciation expense plus systematic grant income | Lower depreciation expense only |
| Net effect on profit | Identical under both methods | |
| Gross investment visible? | Yes, on the face of the balance sheet | Only through disclosure and the cash flow statement |
| Impact on ratios | Higher total assets and liabilities | Lower total assets, no extra liability |
Worked example: machine grant
On 1 January Year 1, an entity buys a machine for 2,000,000 and obtains a 600,000 capital grant with reasonable assurance of compliance. The machine has a 10-year life and no residual value, depreciated straight-line.
| Date | Entry | Debit | Credit |
|---|---|---|---|
| 1 Jan Year 1 | Dr Machine | 2,000,000 | |
| Cr Cash | 2,000,000 | ||
| 1 Jan Year 1 | Dr Cash | 600,000 | |
| Cr Deferred income | 600,000 | ||
| Each year | Dr Depreciation expense | 200,000 | |
| Cr Accumulated depreciation | 200,000 | ||
| Each year | Dr Deferred income | 60,000 | |
| Cr Grant income (other income) | 60,000 |
| Date | Entry | Debit | Credit |
|---|---|---|---|
| 1 Jan Year 1 | Dr Machine | 2,000,000 | |
| Cr Cash | 2,000,000 | ||
| 1 Jan Year 1 | Dr Cash | 600,000 | |
| Cr Machine (grant deducted) | 600,000 | ||
| Each year | Dr Depreciation expense (1,400,000 ÷ 10) | 140,000 | |
| Cr Accumulated depreciation | 140,000 |
Cash flow presentation
Buying assets and receiving the related grants can cause large cash movements. To show gross investment, entities often present these as separate items in the statement of cash flows, whichever balance sheet method they use (paragraph 28).
Grants Related to Income – Accounting and Presentation
Paragraph 29 allows two presentations for income grants:
- As income: shown as part of profit or loss, either separately or under a general heading such as “Other income”.
- As a deduction: netted against the related expense.
Supporters of the first method argue that netting income and expense is inappropriate and that separation aids comparison with unsubsidised expenses. Supporters of the second argue the expense might not have been incurred without the grant, so showing it gross could mislead. The standard treats both as acceptable and notes that disclosure of the grant may be needed to understand the financial statements.
Worked example: training grant
A government agency awards 240,000 to an entity to subsidise a training programme costing 400,000 over two years, spread evenly. The entity has reasonable assurance of meeting the conditions.
| Line | Year 1 | Year 2 | Total |
|---|---|---|---|
| Training expense | 200,000 | 200,000 | 400,000 |
| Grant recognised (240,000 spread with the costs) | 120,000 | 120,000 | 240,000 |
| Net cost to the entity | 80,000 | 80,000 | 160,000 |
If the grant is received up front, the unearned portion sits in the balance sheet as deferred income until the matching costs are incurred.
Accounting for Forgivable and Below-Market Government Loans
Forgivable loans
A forgivable loan from government is treated as a grant once there is reasonable assurance that the entity will meet the terms for forgiveness (paragraph 10). Until then, it remains a liability.
Loans at a below-market interest rate
Paragraph 10A, added by the May 2008 improvements and effective from 1 January 2009, treats the benefit of a below-market government loan as a government grant. The steps are:
- Recognise and measure the loan under IFRS 9 at fair value, using a market rate of interest.
- Measure the benefit as the difference between the initial carrying amount under IFRS 9 and the proceeds received.
- Account for that benefit under IAS 20, considering the conditions and obligations that have been or must be met to identify the costs it is meant to compensate.
Worked example: 2% government loan
An entity receives a 1,000,000, three-year, interest-only loan carrying 2% a year from a government agency to fund a project. The market rate for a similar loan is 8%.
| Component | Amount |
|---|---|
| PV of 3 annual interest payments of 20,000 at 8% | 51,542 |
| PV of 1,000,000 repayable in 3 years at 8% | 793,832 |
| Fair value of loan (initial carrying amount) | 845,374 |
| Proceeds received | 1,000,000 |
| Government grant (benefit of below-market rate) | 154,626 |
| Year | Opening balance | Interest at 8% | Cash paid | Closing balance |
|---|---|---|---|---|
| 1 | 845,374 | 67,630 | (20,000) | 893,004 |
| 2 | 893,004 | 71,440 | (20,000) | 944,444 |
| 3 | 944,444 | 75,556 | (20,000) | 1,000,000 |
Initial entry: Dr Cash 1,000,000; Cr Loan 845,374; Cr Deferred grant income 154,626. If the project costs the loan funds are incurred evenly over three years, the entity releases 51,542 of the grant to profit or loss each year, either as other income or against the related cost.
The grant is released to match the costs the benefit is intended to compensate, not automatically over the loan term. If the loan funds a capital asset, follow the asset-grant rules and release over the asset’s useful life.
Repayment of Government Grants
A grant that becomes repayable is accounted for as a change in accounting estimate under IAS 8 (paragraph 32). The rules differ by grant type:
- Income grants: apply the repayment first against any unamortised deferred credit. Any excess, or the whole amount where no deferred credit exists, goes to profit or loss immediately.
- Asset grants (deferred income method): reduce the deferred income balance by the amount repayable, with any excess to profit or loss.
- Asset grants (net method): increase the asset’s carrying amount by the amount repayable. Recognise immediately in profit or loss the cumulative additional depreciation that would have been charged had the grant never existed.
Circumstances that trigger repayment may also indicate impairment of the asset’s new carrying amount, so consider IAS 36 (paragraph 33).
Worked example: repayment after four years
Using the earlier machine example, assume the entire 600,000 grant must be repaid at the end of Year 4 because a condition was breached.
| Method | Entry | Debit | Credit |
|---|---|---|---|
| A: deferred income | Dr Deferred income (600,000 − 4 × 60,000) | 360,000 | |
| Dr Profit or loss (excess over deferred credit) | 240,000 | ||
| Cr Cash | 600,000 | ||
| B: net against asset | Dr Machine (carrying amount restored) | 600,000 | |
| Cr Cash | 600,000 | ||
| Dr Depreciation expense (4 × 60,000 cumulative additional) | 240,000 | ||
| Cr Accumulated depreciation | 240,000 |
Both methods charge 240,000 to profit or loss immediately. Under Method B the machine’s carrying amount ends at 1,200,000 (840,000 + 600,000 − 240,000), exactly what it would have been without any grant after four years of 200,000 depreciation.
Other Forms of Government Assistance
Some assistance cannot reasonably be valued, or cannot be distinguished from normal trading. IAS 20 does not require recognition, but it does require disclosure (paragraphs 34–38).
Cannot be valued
Free technical or marketing advice and government guarantees.
Part of normal trading
A government procurement policy that accounts for a portion of the entity’s sales. Separating the benefit from trade would be arbitrary.
Not assistance at all
General infrastructure such as improved transport and communication networks or irrigation available to a whole community on an ongoing basis.
Where the benefit is significant, disclose its nature, extent and duration so the financial statements are not misleading. SIC-10 clarifies that assistance to entities in certain regions or industries, with no specific relation to operating activities, still meets the definition of a government grant.
IAS 20 Disclosure Requirements and Checklist
Paragraph 39 requires three disclosures:
- The accounting policy adopted for government grants, including the presentation methods used.
- The nature and extent of grants recognised in the financial statements, and an indication of other forms of assistance from which the entity has directly benefited.
- Unfulfilled conditions and other contingencies attaching to recognised government assistance.
| Check | Why it matters |
|---|---|
| Policy note names the method for asset grants and for income grants | Required by paragraph 39(a); both methods are permitted so users need to know which |
| Amounts of grants recognised, by line item or nature | Shows how profit or the balance sheet has been affected |
| Effect on any separately disclosed income or expense line | Paragraph 31 notes this is usually appropriate |
| Deferred income balance and its expected release | Helps users forecast future profit |
| Unmet conditions, clawback terms and contingent repayment | Paragraph 39(c); apply IAS 37 for related contingent liabilities (paragraph 11) |
| Other assistance received (advice, guarantees, procurement) | Paragraph 39(b) and paragraphs 34–38 |
| Disclosure for immediately recognised grants (past costs or immediate support) | Paragraphs 21–22 require clarity about their effect |
| Separate cash flow lines for asset purchases and related grants | Paragraph 28 shows gross investment |
IAS 20 and Its Relationship with Other IFRS Standards
| Standard | Link to IAS 20 |
|---|---|
| IFRS 9 Financial Instruments | Governs recognition and measurement of government loans, including the fair value of below-market loans (paragraph 10A). |
| IFRS 13 Fair Value Measurement | Provides the fair value definition and measurement for non-monetary grants. |
| IAS 16 Property, Plant and Equipment | The net method reduces the carrying amount and depreciation base of the asset. |
| IAS 36 Impairment of Assets | Consider impairment when a grant becomes repayable (paragraph 33). |
| IAS 37 Provisions, Contingent Liabilities and Contingent Assets | Applies to contingencies related to a recognised grant (paragraph 11). |
| IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors | Repayment is a change in estimate; policy choices and first-time adoption follow IAS 8. |
| IAS 12 Income Taxes | Tax benefits are outside IAS 20. Consider the tax effects of deferred income and asset-basis reductions. |
| IAS 41 Agriculture | Grants relating to biological assets measured under IAS 41 are excluded from IAS 20. |
| IAS 7 Statement of Cash Flows | Asset purchases and related grants are often shown separately (paragraph 28). |
| IFRS 18 Presentation and Disclosure in Financial Statements | Issued April 2024; made minor consequential amendments to IAS 20. |
IAS 20 History, Amendments and Current Status
- September 1981Exposure Draft E21 published.
- April 1983IASC issues IAS 20.
- 1 January 1984Standard becomes operative.
- April 2001IASB adopts IAS 20.
- May 2008Improvements to IFRSs align terminology and add paragraph 10A on below-market government loans, effective 1 January 2009.
- 2011–2014Minor consequential amendments from IFRS 13, the IAS 1 OCI amendments and IFRS 9.
- April 2024IFRS 18 makes consequential amendments.
- December 2025The US FASB issues ASU 2025-10, which draws on IAS 20 principles for business entities reporting under US GAAP.
IAS 20 remains in force, and the IFRS Foundation’s standard page currently shows no related active project. Completed related work includes the Government Grants (Amendments to IAS 20) project and the Interpretations Committee’s work on TLTRO III Transactions (IFRS 9 and IAS 20).
IAS 20 and US GAAP
Before ASU 2025-10, US GAAP had no standard that explicitly addressed government assistance for business entities, so many applied IAS 20 by analogy. ASU 2025-10, issued in December 2025, now sets requirements that leverage IAS 20 and modify disclosures in ASC 832. It is effective for public business entities for annual periods beginning after 15 December 2028, and for other business entities for annual periods beginning after 15 December 2029, with early adoption permitted.
Common IAS 20 Accounting Mistakes and How to Avoid Them
- Recognising income on receipt of cash before conditions are met or reasonably assured.
- Crediting equity directly. The income approach requires profit or loss.
- Releasing asset grants on a straight line over the wrong period instead of following depreciation.
- Treating tax credits as IAS 20 grants without checking whether they sit inside IAS 12.
- Ignoring below-market loans. Failing to split the benefit from the loan under paragraph 10A.
- Treating repayment as a prior-period error rather than a change in estimate.
- Weak disclosure: omitting the presentation method or unfulfilled conditions.
- Changing between the two presentation methods without applying IAS 8 policy-change requirements.
Frequently Asked Questions
What is IAS 20 in simple terms?
IAS 20 is the IFRS standard that tells companies how to record government grants and how to disclose other government help. Grants are recognised as income, matched to the costs they cover, once the entity is reasonably sure it will meet the conditions and receive the money.
What does “reasonable assurance” mean under IAS 20?
It means the entity has sufficient evidence that it will comply with the grant’s conditions and that the grant will actually be paid. IAS 20 does not define a percentage. Receipt of cash alone is not conclusive evidence that the conditions have been or will be met.
Can government grants be credited directly to equity?
No. IAS 20 follows the income approach, so grants are recognised in profit or loss on a systematic basis. The capital approach, which credits grants outside profit or loss, is discussed in the standard but not adopted.
Which is better for asset grants: deferred income or deducting from the asset?
IAS 20 treats both as acceptable alternatives. Profit is the same in each period. Deferred income shows the gross asset and a liability, while the net method shows a smaller asset. Choose one and apply it consistently, with disclosure.
Does IAS 20 cover tax incentives such as investment tax credits?
No. Paragraph 2 excludes assistance provided through taxable profit or tax liability, such as tax holidays, investment tax credits, accelerated depreciation and reduced tax rates. Those are dealt with under IAS 12.
How is a forgivable government loan accounted for?
It is treated as a grant when there is reasonable assurance that the entity will meet the terms for forgiveness. Before that point, it is a financial liability.
How do you account for a government loan at a below-market interest rate?
Measure the loan at fair value under IFRS 9 using a market rate. The difference between that value and the proceeds is a government grant, recognised under IAS 20 to match the costs it compensates.
What happens if a grant has to be repaid?
Repayment is a change in accounting estimate under IAS 8. Income-grant repayments go first against any unamortised deferred credit, with any excess charged to profit or loss. For asset grants, the asset’s carrying amount or deferred income is adjusted, and cumulative additional depreciation is recognised immediately.
What is the difference between a government grant and government assistance?
Government assistance is the broad term for any action providing a specific economic benefit. Government grants are the subset involving transfers of resources in return for compliance with conditions. Assistance that cannot be valued, such as free advice or guarantees, is disclosed rather than recognised.
Is IAS 20 being replaced?
The IFRS Foundation’s standard page for IAS 20 currently lists no related active project. The most recent changes are minor consequential amendments, including those from IFRS 18.
Does IAS 20 apply to US GAAP reporters?
Not directly. Many US business entities historically applied it by analogy. The FASB’s ASU 2025-10 now provides government grant guidance for US GAAP, built on IAS 20 principles, with effective dates beginning after 15 December 2028 for public business entities.
Sources and Further Reading
- IFRS Foundation: IAS 20 standard page
- ICAEW: IAS 20 standards tracker
- PwC Viewpoint: Accounting for government assistance under IAS 20
- IAS Plus: IAS 20 summary
This guide is prepared from the text of IAS 20 and cross-referenced to the IFRS Foundation standard page and published guidance from ICAEW and PwC, listed under Sources above. Paragraph references are to the IAS 20 text. Worked examples are simplified, use round figures and have had their arithmetic checked. IFRS Accounting Standards can change, so always confirm against the current IFRS Foundation text before relying on this guide for a reporting decision.
This article is general educational content based on IAS 20 and publicly available IFRS Foundation, ICAEW and PwC materials. It paraphrases the standard and is not a substitute for the full text of IAS 20 or for advice from a qualified accountant. Worked examples are simplified and use round figures.
(Qualified) Chartered Accountant – ICAP
Master of Commerce – HEC, Pakistan
Bachelor of Accounting (Honours) – AeU, Malaysia