Chapter 6

MFRS 120 Government

Grant

Government Grant
MFRS 120 defines Government Grants as
the assistance provided by the government
in the form of transfer of resources to a
company in return for past or future
compliance with certain conditions relating
to the operating activities of the company.
They exclude those forms of government
assistance which cannot reasonably have a
value placed upon them and transactions
of the entity.

Two approaches to accounting for

GG
Capital approach under this
approach the grant is directly
credited to shareholders interest.
Income approach under this
approach the grant is credited to the
income statement over one or more
periods. This approach is in line with
the accrual concept.
MFRS120 only permits income
approach.

Accounting for government

grants
1. Capital approach
Grant is directly credited to shareholders
interest.
2. Income approach
Grant is credited to the income statement over
one or more periods.
MFRS 120 permits income approach

MFRS 120
Grants can be categorised into two
groups:
Government grant related to assets
Government grant related to income

Government grant related

to assets
Grants related to assets are grants given
to an entity to help purchase, construct or
acquire non-current assets. They may
come with conditions which restrict the
type or location of the assets or the period
during which they are to be acquired or
held.
E.g. Grant received to buy an tableting
machine for Pharmacy Faculty or to buy a
university building

Government grant related to income

Grants related income are the grants
that are not related to assets

For example XYZ College received

grant to subsidize tuition fees of the
students.

Recognition of Grant
Government grants, including non-monetary
grants at fair value, shall not be recognized until
there is reasonable assurance that:
the entity will comply with the conditions
attaching to them; and
the grants will be received.
A government grant is not recognized until there is
reasonable assurance that the entity will comply
with the conditions attaching to it, and that the
grant will be received.

Categories of Grants
Grants related
to assets

Deferred
income
(Deferred
credits) or
Write off
against asset

Grants related to
income
Credit in income
statement or
Deduction against
related expense

Grant related to assets Deferred

Income
New TM Bhd opens a new factory and
receives a government grant of RM150,000
for equipment which costs RM1million. It is
the policy of New TM Bhd to depreciate all
equipment over five years.
Required
Prepare the statement of financial position
extracts to record the grant in the first year
using both the methods mentioned above.

Deferred Income- Government

Grant (Year 1)
RM
Statement of
Comprehensive
Income (20% x
RM150,000)

30,000

Balance c/d

120,000

RM
Cash grant

150,000

RM30,000 classified as Deferred Income in

the Statement of Profit or Loss and Other
Comprehensive Income

150,000

150,000

Statement of Financial Position

(extract) for the Year 1
RM
Non-current asset
Equipment
Less: Accumulated Depreciation (RM1,000,000 x
20%)

1,000,000
200,000
800,000

Current liabilities
Deferred government grant income

30,000

Non-current liabilities
Deferred government grant income (120,000
-30,000)

90,000

Write off against asset

method
By deducting the grant from the
assets carrying amount
RM
Non-current asset
Equipment (1,000,000
150,000)

850,000

Less: Accumulated
Depreciation
(RM850,000 x 20%)

170,000

680,000

Grants Related to Income

There are two alternatives to
presenting the grants related to
income.
The first alternative is to present the
grant as a credit item in the
statement of comprehensive income
( such as other income)
The other alternatives is to deduct
the grant in reporting the related

Revocable/Repayable Grants
A government grant that has been revoked (cancel) or
becomes repayable should be treated as a revision of an
accounting estimate.
Treatment depends on how the repayment is made:
If repayment of grant is related to income
It should be applied first against any unamortised
deferred income.
Any excess should be recognised immediately as an
expense.
If repayment of grant is related to asset
It should be recorded 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 recognised to date as an expense in the absence
of the grant should be recognised immediately as an
expense.

Government Assistance
Definition of government assistance:
Action by government designed to provide an
economic benefit specific to an entity or range of
entities qualifying under certain criteria
Does not include benefits provided only indirectly
through action affecting general trading conditions,
such as the provision of infrastructure in development
areas or the imposition of trading constraints on
competitors.
Not quantified and introduced into the financial
statements.
Examples of such assistance whose value cannot be
reasonably measured are technical or marketing
advice and provision of guarantees.

Disclosures
1. Accounting policy adopted for government grants,
including the methods of presentation adopted in the
financial statements
2. Nature and extent of government grants recognised in
the financial statements and other forms of government
assistance received
3. Unfulfilled conditions and other contingencies attached
to government assistance that has been recognised.