Income Approach Government Grants

According to para 12 ias 20 requires entities to use income approach which is as follows.

Income approach government grants. Government grants are recognised in profit or loss on a systematic basis over the periods in which the entity recognises expenses for the related costs for which the grants are intended to compensate which in the case of grants related to assets requires setting up the grant as deferred income or deducting it from the. Capital approach versus income approach. Income approach the key assumption is that grants from government are not equity financing they are non shareholder related increases in net assets and therefore items of income. It must be noted that the accounting treatment of a government grants must be based upon the nature of grant itself.

Government grants shall be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate. Thus grants that have attributes similar to those of promoters contribution must be treated as a part of the shareholders fund. Ias 20 outlines how to account for government grants and other assistance. Two broad approaches may be followed for the accounting treatment of government grants.

As per income approach grants should be recognized.