What is government grant?

Government grant is the cash or asset given by government to help company if it fulfills the conditions set by government.


This may be categorized as:

Capital grants- grants which are made to contribute towards the acquisition of asset

Revenue grants- grants which are made for other purposes like paying wages.


When recognized?

A grant can be recognized in the FS when:

  1. entity complies with the condition set by government
  2. the grants will be received.

Usually we will use the deferred income method to reverse the deferred income over the useful life of asset.

And this is based on “Accrual” concept or Matching principle.



Accounting policy adopted, including method of presentation(net off or separate method?)

Nature and extent of government grants recognised and other forms of assistance received

(eg, buy a machine?)

Unfulfilled conditions and other contingencies attached to recognised government assistance

(eg, repayment?)


Accounting treatment:

Capital grant:

2 treatments both acceptable in IAS but treatment 1 is banned in UK

treatment1, (net off method)

Step1: Decrease grant from NCA which becomes net cost

DR cash

CR non-current asset


Step2: Depreciate the net cost

DR I/S-depreciation expense

CR accumulated depreciation



treatment2, (separate method)

Step1: Treat the grant separately

DR cash

CR deferred income


Step2: Release deferred income matched with depreciation expense of asset:

DR deferred income (over life of asset)

CR I/S(revenue)




Revenue grant


DR cash

CR deferred income


And subsequently release the deferred income matched with expenses as it is occurred.