What is Capital Grant?
A capital grant is a government grant given to acquire a long-term asset, such as land, building or equipment. Under IAS 20, it is recognized in profit or loss over the useful life of the related asset, either by reducing the asset’s carrying amount or by recording deferred income.
How It Works
- Identify the asset funded by the grant.
- Choose between netting against the asset’s carrying amount or presenting deferred income.
- Recognize the grant in profit or loss over the asset’s useful life, in line with depreciation.
- Disclose accounting policy and any unfulfilled conditions.
Saudi Context
Saudi industrial cities (e.g. SAGIA, Modon) offer capital grants and subsidized land to qualifying manufacturers, treated under IAS 20.
Example
A SAR 5 million grant funds machinery with a 10-year useful life. The grant is recognized as SAR 500,000 per year of other income (or as a reduction of depreciation expense).