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IAS 20

Accounting for Government Grants and Disclosure of Government Assistance

IAS 20 prescribes the accounting for, and disclosure of, government grants and other forms of government assistance, requiring grants to be recognised only when there is reasonable assurance that the entity will comply with attached conditions and that the grant will be received, and matched systematically against the costs they are intended to compensate. [S1]

Effective 1984-01-01Related: IAS 16 · IAS 12 · IAS 8 · IAS 41

Overview

A government grant is a transfer of resources to an entity by government in return for past or future compliance with certain conditions relating to the entity's operating activities; government assistance is broader, covering action by government designed to provide an economic benefit specific to an entity or range of qualifying entities. [S1] IAS 20 prohibits the 'capital approach' of crediting grants directly to equity, instead requiring grants to be recognised in profit or loss on a systematic basis over the periods in which the entity recognises, as expenses, the related costs the grant is intended to compensate — grants related to income are matched against the related expense, and grants related to assets are recognised over the asset's useful life (either by deducting the grant from the asset's carrying amount, or by setting it up as deferred income). [S2]

Why it matters

Government grants and subsidised financing are common tools Nigerian federal and state authorities use to promote priority sectors (agriculture, manufacturing, exports, technology), and how an entity recognises and presents them can materially affect reported profit timing and the apparent cost of the assets or activities they support. Recognising a grant too early (before reasonable assurance of compliance and receipt) overstates income and assets prematurely; recognising it in a lump sum rather than matched to the related costs distorts the periods in which performance is actually being subsidised.

Scope

Applies to accounting for, and disclosure of, government grants and other forms of government assistance. It does not cover government assistance provided in the form of benefits available in determining taxable profit (such as income tax holidays, investment tax credits, accelerated depreciation allowances or reduced tax rates, which are addressed by IAS 12), government participation in the ownership of the entity, or government grants covered by IAS 41 to the extent that Standard's specific requirements apply, nor does it apply to the specific problems arising in accounting for the effects of changing prices.

Key definitions

term: Government grants
definition: Assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity.
term: Government assistance
definition: Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria, excluding benefits provided only indirectly through action affecting general trading conditions.
term: Grants related to assets
definition: Government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets.
term: Grants related to income
definition: Government grants other than those related to assets.
term: Forgivable loans
definition: Loans which the lender undertakes to waive repayment of under certain prescribed conditions, treated as a government grant when there is reasonable assurance the entity will meet the terms for forgiveness.

Recognition

Government grants (including non-monetary grants at fair value) are recognised only when there is reasonable assurance that the entity will comply with the conditions attached to them, and that the grants will actually be received. A grant receivable as compensation for costs already incurred, or for immediate financial support with no future related costs, is recognised in profit or loss in the period in which it becomes receivable, disclosed separately to ensure a clear understanding of its effect. A forgivable loan is treated as a government grant when there is reasonable assurance the entity will meet the terms for forgiveness of the loan.

Initial measurement

A government grant related to assets is either deducted from the carrying amount of the asset (reducing its depreciable amount over its useful life) or recognised as deferred income and recognised in profit or loss on a systematic basis over the asset's useful life, matching the asset's depreciation charge. A grant related to income is presented either as a credit in profit or loss (separately or under a general heading such as 'other income'), or deducted from the related expense. A non-monetary grant (such as land or other resources given at a below-market price) is usually measured at the fair value of the non-monetary asset, with both the asset and the grant recorded at that fair value, though recording both at a nominal amount is an acceptable alternative.

Subsequent measurement

The grant continues to be recognised in profit or loss over the periods that match it against the costs it is intended to compensate. A government grant that becomes repayable is accounted for as a change in accounting estimate under IAS 8: repayment of a grant related to income is applied first against any unamortised deferred credit recognised for the grant, with any excess recognised immediately in profit or loss; repayment of a grant related to an asset is recognised by increasing the asset's carrying amount, or reducing the deferred income balance, by the amount repayable, with the cumulative additional depreciation that would have been recognised to date in the absence of the grant charged immediately to profit or loss.

Presentation

Grants related to assets are presented in the statement of financial position either by setting up the grant as deferred income (a liability, released to profit or loss over the asset's useful life) or by deducting the grant in arriving at the asset's carrying amount; both methods are considered acceptable and the entity's chosen policy is disclosed. Grants related to income are presented either as a separate credit or under a general heading in profit or loss, or deducted from the related expense, again as an accounting policy choice.

Disclosure checklist

The accounting policy adopted for government grants, including the methods of presentation adopted in the financial statements.
The nature and extent of government grants recognised in the financial statements, and an indication of other forms of government assistance from which the entity has directly benefited.
Unfulfilled conditions and other contingencies attaching to government assistance that has been recognised.
Where government assistance cannot reasonably have a value placed on it, or where transactions with government cannot be distinguished from the entity's normal trading transactions, disclosure sufficient to ensure the financial statements are not misleading may still be required.

Practical treatment

The practical discipline is confirming 'reasonable assurance' genuinely exists before recognising any grant — an approved application is not the same as reasonable assurance of both compliance and receipt, particularly where a Nigerian government scheme involves ongoing performance conditions (e.g. job creation targets, minimum investment thresholds) that must continue to be met throughout the grant period. Matching a grant against the specific costs it compensates (rather than recognising it as a lump sum on receipt) requires identifying exactly which expenses or asset the grant relates to, and building a systematic recognition schedule consistent with how those costs themselves will be expensed or depreciated. See nigeria_notes for the specific Nigerian government incentive and support schemes this most commonly arises in practice.

Common mistakes

Recognising a government grant immediately on approval or announcement, before reasonable assurance of both compliance with conditions and actual receipt exists.
Crediting a grant directly to equity (the 'capital approach'), which IAS 20 explicitly prohibits.
Recognising an asset-related grant as income in full on receipt rather than matching it systematically to the asset's useful life through either the deferred income or asset-deduction method.
Confusing an income-tax-based government incentive (a tax holiday, investment tax credit, or accelerated capital allowance, addressed by IAS 12) with an IAS 20 government grant.
Failing to treat a grant that becomes repayable as a change in accounting estimate, instead treating it as an error correction or a new, unrelated liability.
Not disclosing unfulfilled conditions and contingencies attached to a recognised grant, leaving users unable to assess the risk the grant could later become repayable.

Links with other standards

code: IAS 16
relationship: A grant related to the acquisition of property, plant and equipment can be presented either as deferred income or as a deduction from the asset's carrying amount, both permitted under IAS 20, affecting the depreciable amount and depreciation charge recognised under IAS 16.
code: IAS 12
relationship: Income-tax-based government benefits (tax holidays, investment tax credits, accelerated capital allowances, reduced tax rates) are outside IAS 20's scope entirely and are instead addressed within the IAS 12 income tax framework.
code: IAS 8
relationship: A government grant that becomes repayable is accounted for as a change in accounting estimate under IAS 8, not as a prior period error or a new unrelated transaction.
code: IAS 41
relationship: Unconditional government grants related to biological assets measured at fair value less costs to sell are recognised in profit or loss when the grant becomes receivable; conditional grants (including those requiring the entity not to engage in specified agricultural activity) are recognised only when the conditions are met, per IAS 41's own specific guidance.

CFO checklist

Confirm 'reasonable assurance' of both compliance and receipt genuinely exists before recognising any government grant, not merely an approved application.
Identify precisely which costs or assets a grant is intended to compensate, and build a systematic recognition schedule matching that pattern.
Confirm the chosen presentation policy (deferred income versus asset deduction for asset-related grants; separate credit versus expense deduction for income-related grants) is applied consistently and disclosed.
Distinguish IAS 20 government grants from IAS 12 income-tax-based incentives (tax holidays, investment tax credits) in the accounting treatment applied.
Monitor ongoing compliance with grant conditions throughout the grant period, and treat any grant that becomes repayable as a change in accounting estimate.
Disclose unfulfilled conditions and contingencies attaching to recognised government assistance.

FAQs

q: We received approval for a government-subsidised loan for our new factory — do we recognise the subsidy benefit immediately?
a: Only once there is reasonable assurance the entity will comply with the loan's conditions and that the benefit will actually be received; the below-market interest benefit of a government loan is measured as the difference between the loan's initial fair value (per IFRS 9) and the proceeds received, and this benefit is then accounted for as a government grant under IAS 20, recognised systematically over the periods it is intended to compensate, not immediately in full.
q: Our old Pioneer Status tax holiday has been replaced by a new capital-investment-linked incentive — does this fall under IAS 20?
a: No. Income-tax-based incentives, including tax holidays and any new capital-investment-linked tax relief, are specifically excluded from IAS 20's scope and are instead accounted for under IAS 12's income tax framework, since they operate by reducing the entity's tax liability rather than transferring resources to the entity directly.
q: We have to repay a government grant because we failed to meet the job creation targets attached to it — how do we account for this?
a: As a change in accounting estimate under IAS 8: if the grant related to income, the repayment is applied first against any unamortised deferred credit for that grant, with any excess recognised immediately in profit or loss; if it related to an asset, the asset's carrying amount is increased (or the deferred income balance reduced) by the repayable amount, with any cumulative additional depreciation that would otherwise have been charged recognised immediately in profit or loss.

Nigeria application notes

Regulatory overlay

IAS 20 applies in full to Nigerian public interest entities under the FRCN Act 2011 mandate. [S3] Nigeria's principal historical investment incentive, the Pioneer Status Incentive (a companies income tax holiday administered by the Nigerian Investment Promotion Commission under the Industrial Development (Income Tax Relief) Act), was repealed and replaced by the Economic Development Incentive (EDI), effective 1 January 2026 under the Nigeria Tax Act 2025, which links tax relief directly to verified capital investment rather than a blanket sectoral tax holiday; existing Pioneer Status beneficiaries retain transitional protection for their unexpired relief period. [S4][S5] Both the old and new schemes operate through the income tax system and therefore fall under IAS 12, not IAS 20, despite being commonly described as government 'incentives' or 'assistance' in ordinary business language.

Tax interaction (Nigeria)

A genuine IAS 20 government grant (a direct transfer of resources, such as a subsidised loan benefit, a capital grant, or an in-kind input support scheme) is distinct from an income-tax-based incentive; the tax treatment of the grant income itself (whether it is taxable, and if so when) should be confirmed against current Nigeria Tax Act 2025 rules and NRS practice, since the accounting recognition pattern under IAS 20 does not necessarily determine the tax timing of the same amount. [S_TAX1][S_TAX2] Nigerian rates, thresholds, exemptions, incentives and filing rules referenced in this file (including CIT, VAT, withholding tax categories, government incentive schemes, and the small-company threshold) should be independently verified against the Nigeria Tax Act 2025, the Nigeria Tax Administration Act 2025, NIPC/NUPRC/CBN guidance, and current NRS practice at the reporting or filing date, since thresholds, rates and reliefs are subject to periodic revision and to sector- or entity-specific qualifying conditions. This file does not constitute legal or tax advice. [S_TAX1][S_TAX2]

FX considerations

Where a Nigerian entity benefits from a foreign-currency-denominated or foreign-donor-funded grant (common in development finance and agricultural support programmes with multilateral involvement), the grant is translated into naira at the exchange rate applicable at the date it is recognised (when reasonable assurance is achieved), with any subsequent foreign-currency monetary grant receivable retranslated under IAS 21 until settlement; naira volatility between grant approval and actual disbursement can create a translation difference distinct from the grant recognition itself.

SME practical note

Nigerian SMEs benefiting from CBN intervention schemes such as the Anchor Borrowers' Programme (providing below-market-rate agricultural lending through participating financial institutions) should assess whether the below-market interest rate itself constitutes a government grant benefit requiring IAS 20 recognition (measured as the difference between the loan's fair value and proceeds received), separate from simply accounting for the loan itself as a financial liability; Outliers recommends this two-step analysis for any client benefiting from a government-backed concessional lending scheme. [S6]

Common Nigerian pitfalls

Treating the former Pioneer Status Incentive (or its EDI successor) as an IAS 20 grant rather than correctly routing it through IAS 12, since both operate through the income tax system.
Recognising the benefit of a CBN-backed concessional agricultural loan (e.g. under the Anchor Borrowers' Programme) without separately identifying and measuring the below-market-rate grant element.
Recognising grant income on approval rather than waiting for reasonable assurance of both compliance and receipt.
Failing to disclose unfulfilled conditions attached to Nigerian government assistance schemes with ongoing performance requirements (e.g. job creation or minimum investment targets).

FRC pronouncements

No FRCN pronouncement specific to IAS 20 has been identified; the relevant Nigerian regulatory context is primarily NIPC's administration of investment incentive schemes and CBN's administration of sector-specific intervention funds, operating alongside FRCN's general IFRS compliance mandate. [S3][S4]

Worked examples

Grant related to an asset presented as deferred income

A Nigerian manufacturer receives a ₦40,000,000 capital grant from a state government agricultural processing support scheme, conditional on acquiring new processing equipment costing ₦100,000,000 with a 10-year useful life. Reasonable assurance of compliance and receipt is established, and the grant is received in full.

Facts

Workings

The entity adopts the deferred income presentation method (rather than deducting the grant from the asset's cost).

Annual release of the deferred grant income to profit or loss, matched to the equipment's depreciation: 40,000,000 / 10 years = 4,000,000 per year.

Annual depreciation of the equipment (on its full, un-netted cost): 100,000,000 / 10 years = 10,000,000 per year.

Journal entries

Recognise the processing equipment at full cost and the government grant as deferred income on receipt.

Account	Dr (₦)	Cr (₦)
Property, plant and equipment – processing equipment	100,000,000
Cash		60,000,000
Deferred income – government grant		40,000,000

Recognise the first year's depreciation of the equipment and the matching release of deferred grant income to profit or loss.

Account	Dr (₦)	Cr (₦)
Depreciation expense	10,000,000
Accumulated depreciation – processing equipment		10,000,000
Deferred income – government grant	4,000,000
Grant income (profit or loss)		4,000,000

Below-market-rate government-backed loan benefit

A Nigerian agribusiness borrows ₦50,000,000 under a CBN-backed concessional agricultural lending scheme at a subsidised interest rate of 5% per annum, when the market rate for a similar loan without the government backing would be 20% per annum. The fair value of the loan at market terms, discounted at 20%, is determined to be ₦35,000,000.

Facts

Workings

Government grant benefit (difference between proceeds received and the loan's fair value at market terms): 50,000,000 - 35,000,000 = 15,000,000

This 15,000,000 grant benefit is recognised in accordance with IAS 20's recognition principles (matched to whatever costs or purpose the scheme is intended to support), while the loan itself is subsequently measured at amortised cost using the market-based effective interest rate of 20% under IFRS 9.

Journal entries

Recognise the loan at its fair value and the government grant benefit representing the below-market financing advantage.

Account	Dr (₦)	Cr (₦)
Cash	50,000,000
Loan payable (at fair value)		35,000,000
Deferred income – government grant (loan benefit)		15,000,000

Sources & citations

[S1]IAS 20 Accounting for Government Grants and Disclosure of Government Assistance — IFRS Foundationaccessed 2026-07-18
[S2]IAS 20 Accounting for Government Grants and Disclosure of Government Assistance — IFRS in Brief — Moore Globalaccessed 2026-07-18
[S3]IFRS - Use of IFRS Standards by jurisdiction: Nigeria — IFRS Foundationaccessed 2026-07-18
[S4]Pioneer Status Incentive (PSI) — Nigerian Investment Promotion Commission (NIPC)accessed 2026-07-18
[S5]The new economic development tax incentive under the Nigeria Tax Act 2025 — BusinessDayaccessed 2026-07-18
[S6]Anchor Borrowers' Programme Guidelines — Central Bank of Nigeriaaccessed 2026-07-18
[S_TAX1]Nigeria Tax Act, 2025 has been signed – highlights — EY Globalaccessed 2026-07-18
[S_TAX2]The Nigerian Tax Reform Acts — PwC Nigeriaaccessed 2026-07-18

Last reviewed 2026-07-18 · Reviewer: Rafiu Olawuyi, FCA (Author / Technical Reviewer)