Forgivable government loans

Learning objectives

• Determine when a forgivable loan from government is treated as a grant (reasonable assurance that the entity will meet the terms for forgiveness).L2, L3
• Justify and defend in a professional file (L4) the treatment adopted for the "Forgivable loans" concept, distinguishing the IFRS requirement, the case data, the teaching assumption and judgement.L4

Normative references

• IAS 20 §10A loan from government for which the lender undertakes to waive repayment under certain prescribed conditions (forgivable loan) is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• A government loan will be waived if the entity keeps operating on the site for five years. Under what condition does IAS 20 treat it as a grant?L2
• Brevane owes a public agency a loan of {loan_balance}, which is waived if it keeps operating for five years. At 31 December, there is reasonable assurance that this condition will be met. Case convention: the waiver offsets staff costs already recognised, so the grant is taken to profit or loss for the year. Record the entry.L3