The governmental subsidies refer to the assistance given to a company by the government in exchange of respecting some conditions regarding the operation activities. They can be: afferent to the assets, incomes or unredeemable loans. The regulation of the subsidies by IAS 20 Standard contains the recognition norms of the subsidies, except the cases of: price changes, periods of exemption from the profit tax, value reductions regarding the accelerated depreciation or the governmental involvement in the company’s leadership.governmental assistance, subsidies, unredeemable loans, depreciable assets, delayed income.

Violeta ISAI

English

Research Papers in Economics

The Annals of “Dunarea de Jos” University of Galati  
Fascicle I – 2009. Economics and Applied Informatics. Years XV - ISSN 1584-0409 
 
 
  59
 
The Reflection of the Governmental Subsidies 
According to IAS 20 in Accountancy 
 
Violeta ISAI 
violeta.isai@yahoo.com  
Dunarea de Jos University of Galati  
 
Abstract. The governmental subsidies refer to the assistance given to a 
company by the government in exchange of respecting some conditions 
regarding the operation activities. They can be: afferent to the assets, 
incomes or unredeemable loans. The regulation of the subsidies by IAS 20 
Standard contains the recognition norms of the subsidies, except the cases 
of: price changes, periods of exemption from the profit tax, value reductions 
regarding the accelerated depreciation or the governmental involvement in 
the company’s leadership.  
 
Keywords:  governmental assistance, subsidies, unredeemable loans, 
depreciable assets, delayed income. 
 
JEL Code: F32 
 
1. Introduction 
 
In subsidies represent sums received from the government, with unredeemable character, used 
by companies for investments of for the current activities. They are registered in accounting as 
incomes systematically recognized, in the periods when the afferent expenses are made. 
 
2. Aspects regarding the definition and the applicability area 
 
We define governmental assistance as the actions undertaken by the government in order to 
offer economic benefits specific to a company that accomplishes certain criteria. 
 
We do not refer to: the insurance of the substructure in the development areas, imposing some 
commercial constraints to the competitive companies, offering some facilities that must be 
available for the whole community (for example: irrigation systems, sewerage etc.), 
governmental transactions that cannot be separated from the company’s commercial 
transactions. In this context, the company may benefit of governmental subsidies under the 
form of resource transfers in exchange of some conditions concerning the operation activity. 
 
These subsidies may have different forms: 
a.  Subsidies afferent to the assets - they represent subsidies whose main condition is buying 
or building some assets on a long term for the beneficiary company. There can also be 
secondary conditions, such as: the acquisition or holding period, the asset type or its 
position. 
b.  Subsidies afferent to the incomes – they contain all the governmental subsidies, except 
those afferent to the assets. 
c.  Unredeemable loans – there are loans for which the creditor (the government) engages 
itself to exempt the debtor (the company) from their redemption if the debtor accomplishes 
certain established conditions. The Annals of “Dunarea de Jos” University of Galati  
Fascicle I – 2009. Economics and Applied Informatics. Years XV - ISSN 1584-0409 
 
 
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The governmental subsidies are recognized in accountancy if there is the guarantee that the 
company will respect the conditions of their granting and the sums will be received. The 
governmental subsidies are acknowledged as incomes while they are connected to the costs 
they are to counterbalance. 
 
The accounting approach regarding the subsidies can be made: 
  from the point of view of the beneficiary company capital, as the subsidy serves directly to 
the shareholders’ interest; 
  from the point of view of the income, as the subsidy is included to incomes along more 
financial exercises (years). 
 
The second approach has more arguments in its favor, such as: 
  as the governmental subsidies represent an entry from a source other than the shareholders, 
they mustn’t be directly credited to their interests, but considered as income in the 
respective periods; 
  as the governmental subsidies require the accomplishment of some conditions in exchange, 
they must be acknowledged as income in order to correlate them to the costs they are to 
counterbalance; 
  as the income is accounted for the profit and loss account, it is logical that the 
governmental subsidies, which represent an extension of the fiscal policy, should have the 
same destination. 
 
The period of the subsidy acknowledgement as income is usually the same as the period of the 
afferent expense logging. 
 
3. The reflection way in accountancy 
 
1. The reflection in accountancy of the subsidies registered to incomes 
  
The accounting registrations will be: 
    
Year 1, …, n     
445  
„Subsidies” 
=7 4 1   
„Incomes from operation subsidies” 
and    
5121 
„Accounts in RON banks”
=4 4 5   
„Subsidies” 
 
The subsidy passed to incomes is registered in the first formulae and calculated as it follows: 
 
Total subsidies ×   The costs of the respective year regarding the granting condition
Total costs regarding the granting condition 
 
The subsidy collected as such from the state budget for the respective year is registered in the 
second formulae. 
 
The sums from the two accounting formula do not coincide, but on a whole period, there is the 
difference between the overall collected subsidy and the total cost imposed by the granting 
condition (for example: personnel costs imposed by the government in order to create new jobs 
as a condition to grant the subsidy). 
 The Annals of “Dunarea de Jos” University of Galati  
Fascicle I – 2009. Economics and Applied Informatics. Years XV - ISSN 1584-0409 
 
 
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If the sum collected exceeds the subsidy passed to incomes in the first years (year 1 to year N-
1), the difference will be registered as an income in advance: 
  the passing of the subsidy to incomes: 
445  
„Subsidies” 
= 741  
„Incomes from operation subsidies” 
 
  the collection of a larger sum of money: 
5121 
„Accounts in RON 
Banks” 
= %  The collected sum 
    445  „Subsidies”   The subsidy passed to 
incomes 
   472  „Incomes 
registered in advance” 
The extra difference 
collected 
 
Obviously that the difference will be registered as income in the next year: 
472 
„Incomes registered in advance”
= 741  
„Incomes from operation subsidies” 
 
4. The reflection of the assets depreciation subsidies in accountancy is made during the 
assets’ depreciation. 
We will have: 
  the acknowledgement of the subsidy collection right according to the contracts and 
agreements signed with the financial institution:   
 
445 
„Subsidies”
=1 3 1   
„Subsidies for investments” 
 
  the acquisition of the fixed means, for which the company benefits of subsidy, at a higher 
price of acquisition than the subsidy that is to be collected: 
 
213 
„Technical equipments, means of transport, animals and 
plantations” 
=4 0 4   
„Building 
providers” 
 
  the collection of the subsidy by account in the sum stipulated in the contract: 
 
5121 
„Accounts in RON banks”
=4 4 5   
„Subsidies” 
 
  the settlement of the debt towards the building provider: 
 
404 
„Building providers”
= 5121 
„Accounts in RON banks” 
  
  the registration of the fixed means depreciation depending on the acquisition cost (the entry 
value), the utility period (in years)and the depreciation method applied: 
Year 1, …,Year n:     
6811  
„Operation expenses regarding the 
immobilizations’ depreciation” 
= 2813 
„The depreciation of the equipments, 
means of trasport, animals and 
plantations” The Annals of “Dunarea de Jos” University of Galati  
Fascicle I – 2009. Economics and Applied Informatics. Years XV - ISSN 1584-0409 
 
 
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  the acknowledgment of the income afferent to the subsidy that is determined according to 
the relation: 
Subsidy value 
The depreciation period of the fixed means
 
 
131  
„Subsidies for 
investments” 
= 7584 
„Incomes from the 
subsidies for investments” 
The annual income 
corresponding to the subsidy 
 
Observation: In the cases of the subsidies for unredeemable assets (for example sites), they are 
known as incomes in the periods that confirm the cost of carrying out some obligations 
imposed by the investor to the company. 
 
In the case of receiving a subsidy for the acquisition of a site, the condition of having a 
building on that site may be taken into consideration and the subsidy is considered as income 
while using the respective building. 
 
5. The reflection of the subsidies collected under the form of setting off the expenses or 
losses in the previous periods in accountancy. 
 
In this case, the consideration of the subsidy as income is done when it is to be collected. A 
frequent situation is the employees’ dismissal, when the social protection imposes the granting 
of a guarantee to cover the expenses with the refunding payments given to the dismissed 
personnel. 
 
The accounting registrations will be: 
  the refunding payments due to the personnel in the year N: 
 
6458 
„Other expenses regarding the insurances and social 
protection” 
= 462 
„Different 
creditors” 
 
  the payment  of the employees by means of the pay desk : 
462  
„Different creditors”
= 5311 
„The pay desk in RON” 
 
  the right of collecting the subsidy is registered in the year N+1 (usually smaller), as a 
consequence of carrying out the conditions of granting the refunding payments: 
445  
„Subsidies” 
= 7415 
„Incomes from operation subsidies for insurances and social 
protection” 
 
  the collection of the subsidy using the account: 
5121  
„Accounts in the RON banks”
= 445 
„Subsidies”
 
The governmental subsidies that are afferent to the incomes which are to be received as 
compensation for expenses or losses during the respective year (for example, calamities) 
without future afferent costs, are considered an income while becoming debts, being registered 
as extraordinary incomes: 
 The Annals of “Dunarea de Jos” University of Galati  
Fascicle I – 2009. Economics and Applied Informatics. Years XV - ISSN 1584-0409 
 
 
  63
445 
„Subsidies” 
= 771 
„Incomes from subsidies for extraordinary events and others that are 
similar” 
 
Respectively the collection: 
5121  
„Accounts in RON banks”
=4 4 5  
„Subsidies” 
 
4. The reflection of the currency less governmental subsidies in accountancy usually refers to 
sites or other resources that are transferred to the company in order to be used. In this case, the 
site is registered, respectively the subsidy at the right value, respectively the sum for which the 
asset may be willingly exchanged between two parts, within a transaction having the cost 
objectively established. We will have: 
 
211  
„Sites and site disposal”
=1 3 1  
„Subsidies for investments” 
 
6. The governmental subsidies redemption 
 
It is registered when the company receives a subsidy that is calculated depending on an 
estimated cost  of the works (for example, environment works) and the sum that isn’t used, 
calculated depending on the real cost must be redeemed. Percentage penalties from the value of 
the subsidy are gathered when the redemption is not in time.  
 
The registrations will be: 
  the emphasis of the right to receive the subsidy at the estimated sum: 
445 
„Subsidies ” 
= 741 
„Incomes from operation subsidies ” 
 
  the collection of the subsidy at this sum: 
5121  
„Accounts in RON banks”
=4 4 5  
„Subsidies” 
 
  the establishment of the appropriate subsidy depending on the real cost of the works and 
the calculation of the unused subsidy which is redeemed: 
6588  
„Other operation expenses ” 
= 5121 
„Accounts in RON banks”
The unused subsidy
 
  the settlement of the penalty for the late redemption of the unused subsidy: 
6581 
„Damages, fines and penalties”
= 5121 
„Accounts in RON banks” 
 
The unused redeemed subsidy determines the increase of the asset’s net accounting increase 
while the supplementary depreciation is passed immediately to expenses. There is also the 
possibility to reduce the sold for the income registered in advance with the respective 
redeemed sum for the redeemed subsidy. 
 
Observation: In the case of the subsidies for assets, the redemption of the subsidy is made: 
 
131  
„Subsidies for investments”
= 5121 
„Accounts in RON banks” 
 The Annals of “Dunarea de Jos” University of Galati  
Fascicle I – 2009. Economics and Applied Informatics. Years XV - ISSN 1584-0409 
 
 
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Observation: The governmental subsidies redemption may also occur if the company doesn’t 
respect the conditions previously established with the investor (for example: the embezzlement 
of some equipments acquired by means of governmental subsidy before the term).  
 
7. The presentation way in balance 
 
In the case of the subsidies afferent to the assets, the subsidy is considered as an income in 
advance, the depreciation is calculated at the gross cost of the asset while the delayed income 
is registered as an element of distinct incomes. On the one hand, it appears at the “incomes in 
advance” post in the patrimony balance, on the other hand as a right to collect the subsidy 
(debt). 
 
There is also the possibility to deduct the subsidy from the gross value of the asset, the result 
being its net accounting value (in this case, the subsidy is considered as income while using the 
asset, by emphasizing an expense reduced with the redemption. 
 
In the Profit and Loss Account, the subsidies are registered at incomes in order to correlate 
with the costs at the “Other incomes by operation” post. 
 
In the case of the subsidies afferent to the incomes, the subsidies appear in the Profit and Loss 
Account at the “Other incomes by operation” post, as gross incomes and at the “Subsidies 
afferent to the net turnover” post. 
 
There is also the possibility that the subsidies connected to incomes to be deducted from the 
afferent expenses (raw materials, materials, other external expenses, personnel, insurance and 
social protection, interests etc.). 
 
If the subsidies cover already suffered losses without future afferent costs, they appear as 
extraordinary incomes in the Profit and Loss Account. 
 
8. The immobilizations acquisitions from subsidies 
 
The subsidies regarding the assets represent the subsidies that can be granted only if the 
company buy or built immobilized assets. 
 
The subsidy and the assets are in reflected accounting at the right value. They contain also the 
donations for investments and the material and immaterial immobilizations found as surplus at 
the goods stock taking. The subsides for assets, at the right value, are reflected in accounting as 
subsides for investments and are recognized in balance as incomes registered in advance. 
These incomes will be registered in the Profit and Loss Account, when the expenses with the 
depreciation are made, at the assets’ cassation or at the assets’ sale. 
 
  For example, we have a company that receive a subside for building and endowing a 
production hall. 
 
In accordance with the project, the investment’s value contains: 
370.000 RON (100.000E)   the hall’s value 
185.000 RON (50.000E)   the equipments’ value, necessary for the endow of the 
production hall, while don’t require assembly. 
We will have in accounting: 
  the collection of the subsidy in Euro: 
 The Annals of “Dunarea de Jos” University of Galati  
Fascicle I – 2009. Economics and Applied Informatics. Years XV - ISSN 1584-0409 
 
 
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5124 = 131  555.000
“Accounts 
in banks” 
 “Subsidies  for 
investments” 
 
 
  the conversion of the received sum, in RON: 
581 = 5124  555.000 
“Internal transfers”    “Accounts in Euro banks”  
 
5121 = 581    555.000 
“Accounts in RON banks”   “Internal transfers”     
 
 
  the production equipments’ acquisition, necessary to the hall’s endow: 
% = 404  440.300 
2131   “Building  providers” 370.000 
“Technical equipments”      
4426     70.300 
“TVA for acquisitions”       
 
  the reception of the works from the general builder: 
212 = 404  185.000 
“Constructions and buildings”   “Building providers”  
 
  the payment to the building providers: 440.400 + 185.000: 
404 = 5121  625.300 
“Building providers”    “Accounts in RON banks”  
 
The redemption of a subsidy regarding an asset is reflected in accounting by the reduction an 
asset is reflected in accounting by the reduction of the income registered in advance, with the 
redeemable sum. If the redeemable sum exceeds the income, or if this income doesn’t exist, the 
surplus, or the entire redeemed value, is recognized immediately as an expense in the Profit 
and Loss Account. 
 
  For example, on 30.06.2008, we have a company which bought an equipment for 80.000 
RON, with TVA 19%. For the equipment’s acquisition, the company received a 
governmental subsidy of 50.000 RON. The economical utilization length is 4 years. 
 
Because the company didn’t respect any conditions established by the government, on 
01.10.2008, it must return 95% of the subsidy’s value. We will have in accounting: 
  the acquisition of the equipment from the building provider: 
% = 404  95.200 
2131   “Building  providers” 80.000 
“Technical equipments”      
4426     15.200 
“TVA for acquisitions”       
 
  the collection of the subsidy in RON: 
5121 = 131  50.000
“Accounts in RON banks”   “Subsidies for investments”   
 
  the registration of the depreciation for: July, August and September: 
 The Annals of “Dunarea de Jos” University of Galati  
Fascicle I – 2009. Economics and Applied Informatics. Years XV - ISSN 1584-0409 
 
 
  66
6811 =  2813  1.667/month   
 
“Expenses regarding the  
immobilizations’ 
depreciation” 
“The depreciation 
of equipments” 
(1.667 × 3 = 5.000 
RON) 
 
  the passing of the subsidy to incomes, correlated to the weight of the subsidy in the asset’s 
cost. 
131 = 7584  1.042   
“Subsidies for 
investments” 
 “Incomes  from 
subsidies for 
investments” 
⎟
⎠
⎞
⎜
⎝
⎛ ×
000 . 80
000 . 50
667 . 1
 
 
  during the three months we have: 1.024 × 3 = 3.126 RON 
 
  the repayment of 95% from the subsidy, on 01.10.2008: 
%  =  5121  47.500  (50.000 × 95%) 
131   “Accounts  in 
RON banks” 
46.874  (50.000 – 3.126) 
“Subsidies for  
investments” 
      
6588      625  (47.500 – 46.874) 
“Other operation  
expenses” 
      
 
9. Conclusions 
 
In the category of subsidies we have the proper subsidies and also the unredeemable loans. By 
IAS 20 Standard, the subsidies represent received sums or sums to receive by companies in 
exchange to respect certain conditions. They include two categories: subsidies afferent to the 
assets and subsidies afferent to the incomes. In the first case, the income from subsidies sets 
off the expenses regarding the immobilizations’ depreciation, and in the second case, other 
expenses made by the company in a certain period. 
 
References 
 
1.  L. Possler, Gh. Lambru – Contabilitatea întreprinderii, Ed. Fundaţiei Andrei Şaguna, 
Constanţa, 2008 
2.  Mihai Ristea şi colectiv – Contabilitate financiară, Ed. Universitară, Bucureşti, 2005 
3.  Octavian Bojian – Contabilitatea financiară a întreprinderii, Ed. Universitară, Bucureşti, 
2004 
4.  Violeta Isai – Contabilitate financiară, EDP, Bucureşti, 2003 
5.  *** - Ghid practice de palicare a Standardelor Internaţionale de Contabilitate, Ed. 
Economică, Bucureşti, 2001 
 

Ghid practice de palicare a Standardelor Internaţionale de Contabilitate,

Octavian Bojian – Contabilitatea financiară a întreprinderii,

The Reflection of the Governmental Subsidies According to IAS 20 in Accountancy

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