Government Grant
AdvancedA government grant is assistance from a government, in the form of money or other resources, given to a business in return for meeting certain conditions, such as investing in a region, creating jobs or carrying out research.
Governments offer grants to encourage activities that they want more of, such as building factories in disadvantaged areas, training workers, developing green technology or carrying out research. Grants differ from loans because they usually do not need to be repaid, as long as the conditions are met.
Under IFRS, a grant is recognised only when there is reasonable assurance that the company will meet the conditions and receive it. It is then recognised in profit over the periods in which the related costs are recognised, rather than all at once.
For example, a company receives a grant of 1,000,000 towards a machine with a ten-year life. It recognises grant income of 100,000 a year, matching the depreciation on the machine, either as income or by reducing the asset's cost.
If conditions are breached, the grant may have to be repaid, and the company must record a liability. US GAAP has no single standard for grants to businesses, although newer disclosure requirements apply, and many companies follow approaches similar to IFRS.
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