The following forms of government grants and assistance are within the usual scope of government grants and concessions:
Grants may relate to assets whereby an enterprise must purchase or construct fixed assets, or to the performance of certain services such as research and development, either theoretical or applied. Various terms and conditions are often associated with such grants. Alternatively, grants may relate to income, such as compensation for loss of income due to a particular government policy: for example, compensation for loss of income due to restrictions on the use of forest areas for logging purposes, or for restricting agricultural production.
Some transfers may be combinations of several types of assistance; hence it is essential to consider all characteristics of the transfer to determine the most appropriate treatment.
Other forms of indirect government assistance may include import protection in the form of duties and tariffs, or more subtle protection such as local regulations and licensing laws. It may be possible to calculate an estimate of the amount of assistance received if the rate of import duty is applied to the selling price of goods, although it would be a very approximate calculation and it is incorrect to assume that import duties affect the selling price in such a direct manner. Rules and regulations which inhibit or restrict foreign goods from entering the domestic market offer protection against competition and are therefore a form of assistance. However, it would be very difficult to measure in monetary terms the magnitude of this assistance. Additionally, governments often provide free advice or consultancy services, or promote goods for foreign trade, which all bestows benefits upon enterprises. To the extent that such forms of assistance have a material impact upon an enterprise's financial statements, the nature of the assistance should be disclosed and thoroughly explained.
Government grants and concessions may be considered as excluding:
The traditional historical cost accounting model does not accurately present the transaction. Net present value techniques offer a more accurate valuation. If the full value of the loan was recorded, the loan would be repaid over time and the lower rate of return on the interest income would be recognized. However, the opportunity cost of the concession is not reflected in the financial statements and it should be disclosed by notation. An alternative treatment is to recognize the full cost of the concession when the loan is granted so that the cost of the decision to make the concession is not passed to future government administrations. Also, by booking the loan at the lower value, the government immediately recognizes that it has accepted an asset at a value less than the cash disbursed. Significant concessionary loans could be considered as having two components: the grant component which represents the cost of the concession, and the loan component. Present value techniques could be used to quantify the grant and loan components.
A government may also provide assistance to an enterprise to enable repayment of a loan from a third party or previously granted by the government itself. Such a loan cannot really be considered an asset by the government, because in a sense the government is really repaying itself by making such assistance available to the debtor. It may appear logical to write the loan off. However, this would not address the underlying substance of the transaction and the government's funding relationship with the borrower.