Under the Exposure Draft, grants related to income would be recognized in earnings on a systematic and rational basis over the periods in which the entity recognizes expenses that the grant is intended to compensate.
In addition, the Exposure Draft would allow flexibility to present grant income within earnings as either a separate line item, such as other income, or as a reduction of the related expense.
Additionally, for grants related to an asset, entities would have the option to either recognize the grant as deferred income on the balance sheet or to reflect the grant in determining the carrying amount of the asset on the balance sheet. If the former option is elected, the deferred income is to be recognized in earnings on a systematic and rational basis. However, if the latter option is elected, there would be no subsequent separate recognition of the grant proceeds in earnings as they would have already been reflected in the carrying amount of the asset.
The Exposure Draft would not apply to exchange transactions, below-market interest rate loans, or government guarantees. In addition, the proposed updates would not apply to not-for-profit entities or employee benefit plans.
The Exposure Draft would permit an entity to apply the guidance on either a prospective basis or on a retrospective basis with a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the earliest period presented.
The effective date and whether early adoption would be permitted have not yet been determined. Comments on this proposed update are due by March 31, 2025.
The full text of the Exposure Draft can be found here.
Published: 01/06/2025
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