Chapter 7: Repayment of government grants

IAS 20 requires that a government grant that becomes repayable should be accounted for as a change in accounting estimate in accordance with IAS 8. As described, a change in estimate is accounted for in the period of change if the change affects that period only, or in the period of change and in future periods, if the change affects both.

The accounting treatment for the repayment of a government grant is as follows:

• repayment of a grant related to income should be applied first against any unamortized deferred credit recognized in respect of the grant. To the extent that repayment exceeds any such deferred credit, or when no deferred credit exists, the repayment should be recognized immediately as an expense; and
• repayment of a grant related to an asset should be recognized by increasing the carrying amount of the asset or reducing the deferred income balance by the amount repayable. The cumulative additional depreciation that would have been recognized in profit or loss to date in the absence of the grant should be recognized immediately in profit or loss.

Repayment of a government grant – example The facts are the same as previous FAQ. At the end of 20X3, it is evident that the entity has failed to fulfil the employment conditions attached to the receipt of the asset-related grant. The grant therefore becomes repayable. Under the two methods of presentation of the grant, the treatment of the repayment is as follows. Method A: Grant shown as deferred income CU  Grant received, credited in 20X1 to deferred income 250,000 Recognized in profit or loss 20X1 to 20X3 (3 × CU50,000) (150,000) Deferred income balance at end of 20X3, before repayment of grant 100,000 Total repayment of grant 250,000 Repayment debited to deferred income balance (100,000) Balance of repayment recognized in profit or loss 150,000 Note that, under this method, the repayment of the grant has no effect on the carrying amount of the equipment or on the depreciation expense recognized. Method B: Grant deducted from cost of asset CU  Cost of equipment 1,000,000 Less: grant received in 20X1  (250,000) Net cost of equipment 750,000 Depreciation expense recognized 20X1 to 20X3 (3 × CU150,000)  (450,000) Carrying amount of equipment at end of 20X3, before repayment of grant 300,000 Add back grant repayable   250,000 550,000 Cumulative additional depreciation recognized in profit or loss for 20X1 to 20X3 (3 × CU50,000)  (150,000) Carrying amount of equipment at end of 20X3, after repayment of grant   400,000 The circumstances surrounding the repayment of a government grant may require consideration regarding the possible impairment of the new carrying amount of the asset. This could occur, for example, if the repayment of the grant resulted from a failure to comply with government regulations or conditions attached to receipt of the grant, which, in turn, reflected adverse changes in the operating environment of the entity.