Every year, thousands of Singapore SMEs receive government grant payouts under schemes such as the Enterprise Development Grant (EDG), Productivity Solutions Grant (PSG), Market Readiness Assistance (MRA), and various Startup SG programmes. Far fewer of those companies book the grant correctly in their accounts. Getting it wrong does not usually attract regulatory attention on its own, but it does distort your profit and loss statement, misleads readers of your financial statements about the year the income actually relates to, and can create avoidable questions from your auditor or from IRAS.
The applicable accounting standard is FRS 20, Accounting for Government Grants and Disclosure of Government Assistance, and it sets out a clear framework once you understand the two core principles behind it.
The Core Principle: Match the Grant to the Cost It Offsets
FRS 20’s central idea is that a government grant should be recognised in profit or loss on a systematic basis over the periods in which the company recognises, as expenses, the related costs the grant is intended to compensate. A grant is not simply income the moment cash lands in your bank account; it is income that must be matched against whatever cost or loss it exists to offset.
This produces two broad categories of grant:
| Grant Type | Accounting Treatment | Typical Example |
|---|---|---|
| Grants related to income | Recognised in profit or loss in the same period as the expense they are intended to compensate, often as a credit against the related expense line or as other income. | PSG or EDG payouts reimbursing consultancy fees, training costs, or software subscription costs |
| Grants related to assets | Recognised in profit or loss over the useful life of the asset, either by setting up the grant as deferred income and releasing it systematically, or by deducting the grant from the asset’s carrying amount and depreciating the net figure. | A grant that part-funds the purchase of production equipment or automation machinery |
When Can You Recognise the Grant?
FRS 20 does not allow a company to recognise a grant purely because it has been approved on paper. Two conditions must both be met:
- There is reasonable assurance that the company will comply with the conditions attaching to the grant (for example, completing the funded project, retaining local employment levels, or hitting agreed KPIs); and
- The grant will actually be received.
In practice, this means the timing of recognition often lags approval. A PSG grant approved in November for a software rollout that only completes and is invoiced the following March should not be booked as income in November; it should be matched to the period in which the related qualifying expenditure is incurred, once the company can reasonably expect to meet the disbursement conditions.
Working Example
Assume a company receives an approved PSG grant of S$30,000 (80% co-funding) toward a S$37,500 CRM software project, and the project runs across two financial years, with S$22,500 of qualifying costs incurred in Year 1 and S$15,000 in Year 2.
| Period | Qualifying Cost Incurred | Grant Income Recognised (80%) |
|---|---|---|
| Year 1 | S$22,500 | S$18,000 |
| Year 2 | S$15,000 | S$12,000 |
| Total | S$37,500 | S$30,000 |
Any grant cash received in Year 1 that exceeds the S$18,000 recognisable in that period should sit on the balance sheet as deferred income (a liability), not be recognised as income immediately, because it relates to costs the company has not yet incurred.
Presentation: Two Acceptable Approaches
For grants related to assets specifically, FRS 20 permits two presentation methods, and companies should pick one and apply it consistently:
- Deferred income method: the grant is recorded as deferred income and released to profit or loss on a systematic basis over the asset’s useful life, alongside depreciation of the full cost of the asset.
- Deduction method: the grant is deducted from the carrying amount of the asset, so depreciation is charged on the net (post-grant) cost of the asset instead.
Both approaches produce the same net effect on profit over the life of the asset, but they present very differently on the balance sheet, which matters if a lender or investor is reading your financial ratios.
Disclosure Requirements
FRS 20 requires disclosure of the accounting policy adopted, the nature and extent of government grants recognised in the financial statements, and any unfulfilled conditions or contingencies attaching to grants that have already been recognised. For a small company relying on the audit exemption, this disclosure is still expected in the notes to unaudited financial statements, even though there is no auditor to test it.
Common Mistakes We See
- Recognising the full grant as income on the date of approval, rather than matching it to related expenditure.
- Booking grant income received in advance directly to profit or loss instead of parking the unearned portion as deferred income.
- Netting grant income against an unrelated expense line, which understates both revenue and the true cost base of the business.
- Failing to track claw-back conditions, which is a real risk given how strictly Enterprise Singapore enforces post-disbursement KPIs.
How Raffles Corporate Services Can Help
Whether you are applying for an EDG, PSG or MRA grant, or you already have grant income sitting in your books, our accounting team can help you set up the right recognition policy from the outset, so your financial statements hold up to auditor and IRAS scrutiny alike.
Related reading: From EDG, PSG and MRA to the New EDGE Grant, Productivity Solutions Grant (PSG) Guide, and Section 19A Capital Allowances.
Source: FRS 20, Accounting for Government Grants and Disclosure of Government Assistance (Accounting Standards Council Singapore); Enterprise Singapore.
The Editorial Team, Raffles Corporate Services