Reporting entities may elect to present an asset-related grant as an offset to plant or as a deferred credit on the balance sheet. Regardless of financial statement presentation, receipt of an asset-related grant generally creates an income tax timing difference, and deferred income tax accounting would apply. ASC 740 addresses the accounting for a similar type of temporary difference in ASC 740-10-25-20(f).

We believe there are two acceptable approaches for the initial recognition of temporary differences between the book and tax bases of an asset. Under the ASC 740 guidance, the deferred tax asset is determined through a simultaneous equation that generates a corresponding decrease in the book basis of the related capital asset. An example of this treatment can be found in ASC 740-10-55-171 through ASC 740-10-55-182. An acceptable alternative view is to recognize the deferred tax impacts of the transaction as an immediate adjustment to income tax expense. The decision to account for the deferred tax impacts associated with a temporary difference arising from an asset-related grant using one of these methods is an accounting policy election that should be consistently applied.

See Examples TX 3-1 and TX 3-2 in TX 3.3.5.2 for an illustration of both methods. See also In depth 2023-04 for further discussion of the presentation of government grants on the balance sheet.