How are grants relating to income treated under IAS 20?

Under IAS 20, grants relating to income are primarily recognized as deferred income, which means they do not affect the income statement immediately upon receipt. Instead, they are recorded in the balance sheet as a liability until the conditions of the grant are met. This approach ensures that the income from grants is recognized systematically over the periods that the related costs are incurred or over the useful life of the asset if the grant relates to an asset.

When a grant is linked to income or to cover specific expenses, it is often recognized as income in the same period as the expenses it is intended to compensate. Therefore, the correct treatment is for these grants to be deferred and recognized as income in future periods rather than being recognized directly as revenue or as an expense.

Thus, the idea of recognizing the grant as an expense when repaid does not align with the standard’s treatment, as the focus is on recognizing the income associated with the grant rather than treating it as a liability or an expense at the point of repayment. This systematic approach to recognizing grants ensures that the financial statements accurately reflect the timing of the related income and expenses, promoting consistency and transparency in financial reporting.