IAS 20 — Recoverable cash payments

Date recorded:


In November 2015 the Interpretations Committee received a request to clarify whether cash payments made by a government to assist an entity to finance a research and development project should be accounted for as a liability (i.e. a forgivable loan as defined in IAS 20) or as revenue (i.e. a government grant as defined in IAS 20) when received.  In the scenario presented, the cash payments were repayable to the government if the entity decided to exploit and commercialise the results of the research phase of the R&D project.  The submitter cited current divergence in practice.

The staff preliminary conclusion was that there is sufficient guidance in IAS 20 and other Standards to assist an entity in determining the appropriate treatment for the cash payments and that diversity in practice was limited.  The staff noted that the appropriate accounting would depend on the specific terms and conditions of the cash payment received. The Interpretation Committee tentatively decided that the issue should not be taken onto its agenda and published a tentative agenda decision with a 60 day comment period.

In March 2016, the Interpretations Committee analysed the comments letters received.  The majority of respondents agreed with the tentative agenda decision and requested wording changes and further clarifications. There was considerable debate about making references to the fact that the transaction will potentially be a forgivable loan (see Agenda paper 7 from March 2016 for further analysis). The Interpretations Committee decided to remove any reference to that term. Also, the Interpretations Committee confirmed its preliminary decision that the transaction gives rise to a financial liability (and hence falls within the scope of IFRS 9 or IAS 39). Furthermore, the staff was instructed to perform further analysis on how to account the transaction at inception.

The purpose of this session is to discuss (i) the staff analysis and (ii) finalisation of the agenda decision.

Staff Analysis

The staff analysed how an entity should account for any difference between the cash payment received from the government and the measurement of the financial liability at initial recognition.

The staff noted that an entity should first assess whether the difference is related to the financial liability.  If the difference is not related to the financial liability, an entity should apply the particular IFRS Standard to that component.

The staff concluded that, for the fact pattern presented, this additional component could be a government grant. This is because the government intends to compensate an entity for future R&D. Accordingly, an entity should apply the requirements of paragraph 7 of IAS 20 to that component and defer the related recognition of the grant when the cash payment is received. The staff also concluded that the assessment of whether the requirements of paragraph 7 are met will depend on specific facts and circumstances.

In other cases, (i.e. the difference is related to the financial liability) the staff concluded that an entity should apply the requirements of IFRS 9.

Staff Recommendation

The staff recommended finalising the agenda decision. The proposed wording was included in Appendix A of the agenda paper.


The Chairman indicated that he had a discussion about the tentative agenda decision with the emerging economies group. He noted that the problem was persistent and the group had identified four possible views: (i) the transaction was not in the scope of IFRS 9 and instead was a government grant that should be recognised and amortised over the term of the grant; (ii) the transaction was not perceived different than a government loan; (iii) it would be difficult to apply fair value to this type of transaction in emerging economies; they could only possibly considered the cash received as fair value;  and (iv) others view government grant as being tied to future activity.

There was general agreement with the staff analysis; particularly that the transaction met the definition of a financial liability. It was acknowledged that it would be difficult to measure if there was an element of a government grant. It was also acknowledged that commenting on how to fair value such a liability was not within the scope of the agenda decision.

There was an extensive debate about whether this transaction could be a forgivable loan. The following concerns were raised: (i) IAS 20 was not clear as to what conditions should take place to consider a loan as a forgivable loan; (ii) whether by issuing an agenda decision the Interpretation Committee was not actually issuing an interpretation of IAS 20; and (iii) it was not clear how an entity should proceed if there was an overlap between IFRS 9 and IAS 20;

To support that the transaction was not a forgivable loan it was pointed out that there was an obligation to pay cash or to deliver back the IP; which seemed more like a settlement option rather than a ways of not paying back the loan. However, many Interpretation Committee members expressed concern that this conclusion did not necessarily derived directly from reading IAS 20 and it could be considered an interpretation.

The Interpretation Committee members approved issuing a final agenda decision. The agenda decision will add more clarifications for why the particular fact pattern was considered not to be a forgivable loan as defined in IAS 20. 

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