How to Record Government Grants in Accounting Australia

How to Record Government Grants in Accounting Australia

The Government of Australia funds projects that benefit the country, contribute to its growth, and make its future brighter. Funds the government provides businesses are called cash incentives, subsidies, duty drawbacks, etc. To deal with the accounting for government grants, accountants and businesses use Accounting Standard 12.

Are you interested in learning more about how to record Government grants in Accounting in Australia? If yes, you have landed at the right place; here, we will help you determine what government grants are, how to record government grants, different approaches for accounting government grants, and a lot more. So continue reading this blog!

Government Grants: What it is?

Government grants refer to the support provided by government agencies, governments, and similar bodies, including national or international and local, to an enterprise either in cash or in kind. The Australian government provides these grants to an enterprise in order to meet past or future compliance with certain conditions.

However, grants cannot include any form of government support that cannot be reasonably valued or differentiated from an enterprise’s typical trading transactions. It is essential to have the receipts of government grants for an enterprise to prepare financial statements accurately.

There are two reasons for keeping the government grants’ receipt as an enterprise: the need to adopt an accounting method apt for government grants, and the other is to indicate the number of benefits received from government grants while reporting income.

Accounting for Government Grants in Australia

There are two approaches an enterprise can treat government grants in Australia: the capital approach and the income approach. The accounting treatment also depends on the nature of the grant; therefore, the grants having characteristics similar to those of promoters’ contributions should be treated by an enterprise as a part of shareholder’s funds.

On the other hand, another set of grants provided by the government to an enterprise must be treated as income. Also, they must be recognised in the profit and loss statement and matched with the related cost during the reporting period. However, the government grants received by an enterprise on a receipt basis cannot be recognised as income in the profit and loss statement since such grants are not income according to the accrual accounting assumption.

In most cases, the expenses related to a government grant are required to be recognised in various periods and can be easily determined generally. Government grants, therefore, are counted as income during the same period that those expenses are recognised.

Income Approach

Government grants are treated as income over various periods as per the income approach. Various arguments that support the income approach exists; some are as follows: –

  • Grants are given with a solid reason, and when an enterprise complies with the terms and conditions while meeting the prescribed obligations, therefore, the government grants must be considered as income.
  • Since income taxes are charged against government grants just like other income resources, therefore, government grants must be treated as income by an enterprise in Australia.

Capital Approach

If an enterprise follows the capital approach, they treat government grants as a part of shareholders’ or capital fund. The government provides these grants as total investment in an enterprise. The government requires no repayment of these grants. Therefore, government grants must be added to the shareholders’ funds.

Another argument on this matter says that government grants are not justified to recognise grants in profits and loss statements. This is due to the fact that such government grants are not earned; rather, they are seen as incentives by the businesses that get them without any further costs.

Final Verdict

Many enterprises receive government grants in Australia that contribute to their overall growth as well as the development of the country. Very few enterprises know how to account for government grants in Australia, while others are confused about whether to deal with them through capital or income approach.

This blog contains all the information that one needs regarding accounting government grants as an enterprise in Australia. Though you will understand the concept of treating government grants through this blog quickly, if you struggle, the experts of KPG Taxation are just one call away from you.

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