## AS 12 — Definition, Scope, and Recognition of Government Grants
### What Is a Government Grant?
Government assistance provided in cash or in kind to an enterprise for:
- Past compliance with certain conditions, OR
- Future compliance with certain conditions
The key distinguishing feature: conditions must be attached. A pure capital injection without conditions is not a grant under AS 12.
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### What AS 12 Does NOT Apply To
| Exclusion | Example |
|---|---|
| Tax-based government incentives | Tax holiday periods, tax exemptions, tax deductions |
| Government participation as equity investor | Government buying shares in a company as equity shareholder |
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### Recognition Criteria — The Two-Condition Test
A government grant is not recognised until there is reasonable assurance of both:
| Condition | Description |
|---|---|
| (a) Compliance | The enterprise will comply with all conditions attached to the grant |
| (b) Receipt | The grant will actually be received |
Both conditions must be satisfied simultaneously. Mere application or expectation of a grant does not justify recognition.
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### The Two Accounting Approaches
| Approach | Grant Type | Core Logic |
|---|---|---|
| Capital Approach | Capital Grant | Grant strengthens capital base — credited to reserves, not income |
| Income Approach | Revenue Grant | Grant compensates for expenses — matched against related expenses as income |
Which approach to use depends on the purpose and nature of the grant:
- Grant for acquiring a fixed asset → Capital approach (generally)
- Grant to reimburse operating expenses → Income approach