How are grants recognized in profit or loss over a period?

Grants are recognized in profit or loss based on the duration for which the conditions of the grant are met. This approach aligns with the accrual principle, where income is recognized in the period it is earned rather than when the cash is received. When an entity receives a grant, there are usually specific conditions that must be fulfilled, such as spending the funds on qualifying expenses or achieving certain performance targets.

The recognition of the grant in profit or loss thus occurs over the periods in which these conditions are satisfied. This ensures that the income from the grant matches with the expenses incurred to meet the conditions, providing a clearer picture of the entity's financial performance during that period. Recognizing the grant only after all conditions are fully satisfied also prevents distortions in financial results during periods when the grant has not yet contributed to economic benefits.

Other approaches like recognizing it immediately upon issuance or as a one-time adjustment do not accurately reflect the timing of the benefits related to the grant, nor do they correlate the income recognition with the actual performance or expenses incurred in relation to the grant conditions.