How are asset-based grants primarily recorded in terms of financial reporting?

Asset-based grants are primarily recorded as deferred liabilities in financial reporting because they represent funds received from grantors intended to support the acquisition of specific capital assets. When an organization receives such a grant, it does not recognize the funds as income immediately. Instead, the grant amount is recorded as a liability until the organization incurs the related expenses or fulfills the conditions attached to the grant, such as utilizing the funds for the designated purpose.

This accounting treatment reflects the principle of matching revenues with expenses, ensuring that the income is recognized in the period when the related asset is put into use or when obligations are met. Consequently, the recognition of income occurs progressively as the company meets specific milestones or conditions set forth by the grantor, transitioning the deferred liability to income over time as the conditions are satisfied.