(P) December 16, 2028; (N) December 16, 2029
832-10-65-2The Implementation Guidance and Illustrations Section is organized as follows:- a
Implementation guidance is provided in paragraphs . - b
Illustrations are provided in paragraphs .
(P) December 16, 2028; (N) December 16, 2029
832-10-65-2Paragraphs are an integral part of this Topic. These paragraphs provide additional guidance that addresses the application of the guidance on government grants.(P) December 16, 2028; (N) December 16, 2029
832-10-65-2Different terms can be used to describe various types of government assistance (for example, grants, awards, or subsidies). Therefore, an entity should consider the individual facts and circumstances to determine whether assistance received from a government meets the definition of a government grant and, therefore, is within the scope of this Topic.(P) December 16, 2028; (N) December 16, 2029
832-10-65-2A government grant is received in the form of a monetary asset or a tangible nonmonetary asset from a government. Examples of a government grant include the following:- a
A transfer of cash to fund future expenditures or reimburse expenditures already incurred (for example, capital expenditures, wages, training and other employee-related costs, research and development expenses, or other operating expenses)
- b
A transfer of a tangible nonmonetary asset such as a long-lived asset (for example, a building, land, or equipment)
- c
The proceeds of a forgivable loan when an entity meets the guidance in paragraph 832-10-25-1, including when it is probable that the entity will meet the terms for forgiveness of the loan - d
A refundable tax credit that is not within the scope of Topic 740 on income taxes.
(P) December 16, 2028; (N) December 16, 2029
832-10-65-2The scope of the guidance in this Topic is limited to government grants and, therefore, excludes the following:- a
The transfer of an intangible asset or provision of a service
- b
A reduction of an entity’s liabilities (for example, sales, property, payroll, or other tax abatement)
- c
Government participation in the ownership of an entity
- d
A contribution to a business entity from a nongovernmental source within the scope of Subtopic 958-605 on not-for-profit entities—revenue recognition - e
A transaction within the scope of Topic 606 on revenue from contracts with customers or Subtopic 610-20 on other income—gains and losses from the derecognition of nonfinancial assets.
(P) December 16, 2028; (N) December 16, 2029
832-10-65-2In most cases, the period over which an entity recognizes the costs or expenses related to a government grant is readily ascertainable. Thus, a government grant that is intended to reimburse specific expenses should be recognized in earnings on a systematic and rational basis over the periods in which the entity recognizes the relevant expenses. Similarly, a government grant related to a depreciable asset that is accounted for using the deferred income approach in accordance with paragraph 832-10-25-4(a) should be recognized in earnings on a systematic and rational basis over the periods in which depreciation expense on that asset is recognized (in the absence of impairment or disposal).(P) December 16, 2028; (N) December 16, 2029
832-10-65-2Government grants may be received as part of a package of financial or fiscal aid that contains a number of conditions. In such cases, judgment is needed to identify the conditions related to the costs that determine the periods over which the government grant will be recognized. (P) December 16, 2028; (N) December 16, 2029
832-10-65-2Entity A is awarded a government grant of $5 million to assist with the cost of purchasing a building, which is the only condition attached to the grant. The government grant proceeds will be received after the purchase of the building. When the building is purchased, Entity A has incurred the related costs for which the government grant is intended to compensate and determines that the probable criteria in paragraph 832-10-25-1(a)(1) through (a)(2) have been met. The building has a useful life of 40 years.(P) December 16, 2028; (N) December 16, 2029
832-10-65-2Entity A can elect to recognize the government grant as deferred income on the balance sheet using the deferred income approach in accordance with paragraph 832-10-25-4(a) or reflect the government grant as an adjustment to the cost basis in determining the carrying amount of the building using the cost accumulation approach in accordance with paragraph 832-10-25-4(b). (P) December 16, 2028; (N) December 16, 2029
832-10-65-2If Entity A elects the deferred income approach, it should recognize the government grant as deferred income. Once the building is placed into service, Entity A begins recognizing the government grant of $5 million in earnings on a systematic and rational basis over the 40-year period in proportion to the depreciation expense recognized in accordance with paragraphs 832-10-25-5 and 832-10-55-6. Entity A may elect to present the grant in earnings either separately under a general heading such as other income or deducted from the related expense (for example, depreciation). Entity A should revise the pattern of recognition if the building is disposed of or impaired.(P) December 16, 2028; (N) December 16, 2029
832-10-65-2If Entity A elects the cost accumulation approach, it should reflect the government grant as an adjustment to the cost basis in determining the carrying amount of the building. Once the building is placed into service, there is no subsequent separate recognition of the government grant proceeds in earnings. The carrying amount of the building, which reflects the government grant proceeds, should be used to determine the depreciation expense or subsequent accounting in accordance with paragraph 832-10-25-7.(P) December 16, 2028; (N) December 16, 2029
832-10-65-2Entity B is awarded a government grant of $2 million for qualifying expenditures associated with the research and development of a new drug. Entity B will receive cash from the government on a cost-reimbursement basis by submitting proof that it has incurred qualifying expenditures. Entity B determines that the probable criteria in paragraph 832-10-25-1(a)(1) through (a)(2) have been met because it is probable that it will comply with the condition of the government grant (to incur qualifying expenditures) on the basis of its detailed project plan and budget and that the grant will be received. (P) December 16, 2028; (N) December 16, 2029
832-10-65-2Entity B incurs the qualifying expenditures associated with the research and development of a new drug over a 2-year period and recognizes the government grant of $2 million on a systematic and rational basis over the 2-year period as those costs are incurred in accordance with paragraphs and 832-10-55-6. No government grant proceeds would be recognized in earnings until Entity B incurs the related expenses. In addition, a receivable would not be recognized on the balance sheet unless and until Entity B incurs the qualifying expenditures associated with the research and development of a new drug.(P) December 16, 2028; (N) December 16, 2029
832-10-65-2Entity B can elect to present the government grant proceeds either separately under a general heading such as other income in accordance with paragraph 832-10-45-3(a) or as a deduction from the related expenses in accordance with paragraph 832-10-45-3(b).