Accounting for JobKeeper and JobMaker where employee costs have been capitalised

Previous Accounting News articles explain how JobKeeper (May 2020) and JobMaker (November 2020) government subsidies are accounted for as government grants under IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. This is a straightforward process where JobKeeper and JobMaker subsidies compensate for employee costs already expensed in profit or loss. However, where employee costs have been capitalised under other accounting standards such as inventories, property, plant and equipment or intangibles, it is important to note that entities may not be able to recognise government grant income immediately in profit or loss when the JobKeeper or JobMaker payments are received from the ATO.

This article explains the accounting when JobKeeper or JobMaker subsidies are received for employee costs capitalised into assets under applicable accounting standards.

Accounting when salaries and wage costs have been expensed in profit or loss

Where salaries and wage costs have been expensed in profit or loss, JobKeeper and JobMaker subsidies are recognised as government grant income in profit or loss when they become receivable. IAS 12, paragraph 20 notes that government grants which compensate businesses for expenses that have already been incurred in order to give immediate financial support, with no future related costs, are recognised in profit or loss of the period in which they become receivable.

A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognised in profit or loss of the period in which it becomes receivable.

IAS 20, paragraph 20

Accounting where salaries and wage costs have been capitalised as PPE, inventories, intangible assets, E&E assets, etc.

IAS 20, paragraph 12 requires government grants to be recognised in profit or loss on a systematic basis over periods in which the entity expenses the related costs for which the grant income is intended to compensate.

JobKeeper and JobMaker subsidies are intended to compensate entities for salary and wage costs incurred. Where these salary costs are capitalised into the cost of PPE, inventories, intangible assets, E&E assets, etc. (i.e. assuming criteria for capitalisation of salaries into the cost of these assets is met), any related JobKeeper and JobMaker grant income should be deferred and recognised in profit or loss as income during periods when the related asset is depreciated/amortised.

Receipts of JobKeeper and JobMaker grant income are therefore not recognised immediately in profit or loss, but deferred and recognised as income as the related asset is recognised as costs of goods sold (inventories), depreciation (property, plant and equipment), or amortisation (intangibles).

JobKeeper and JobMaker grant income relating to capitalised salary and wage expenses should therefore be presented in the statement of financial position in either of the following ways:

Deducting the JobKeeper/JobMaker grant in arriving at the carrying amount of the asset, or
Setting up a deferred income account, which is recognised as income over the period that the related asset is depreciated.

Government grants shall be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate.

IAS 20, paragraph 12