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| Old GAAP | FRS 102 | Further Comment On Differences |
| Government Grants | Governments Grants (S.24) | |
| Government grants are assistance by government in the form of cash or transfers of assets to an enterprise in return for past or future compliance with certain conditions relating to the operating activities of the entity.
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Government grants are assistance in the form of a transfer of resources to an entity in return for past or future compliance with specific conditions. It excludes transactions with governments that cannot be distinguished from the normal trading transactions of the entity.
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Similar to old GAAP, except that grants exclude forms of assistance that cannot reasonably be valued or distinguished from normal trading of the entity.
Therefore under old GAAP items such as research and development tax credits came within the scope of the old GAAP standard (SSAP 24). Under FRS 102 judgement will be required in determining how to account for these. However it is likely that the same answer will be obtained but this will be based on the facts and circumstances of each scheme. |
| Grant income is not recognised unless there is reasonable assurance that the entity will comply with all the conditions of the grant and the grant will be received.
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Government grants should be recognised when there is reasonable assurance that the entity will comply with the conditions of the grant and the grant will be received. | There is a difference here as under old GAAP all the conditions relating to the grant had to be complied with before it could be recognised whereas under Section 24, there must be reasonable assurance that it will be complied with. This will result in grants being recognised earlier. Where a grant was receivable but could not be recognised under old GAAP as it did not have all the criteria for obtaining the grant but if it was probable it would be received at that date, a transition adjustment will be required to reflect this on transition. The journals required at the transition date would be to:
Dr Grant receivable Cr Deferred income where it is a capital grant or Cr Profit and loss reserves if it is a revenue grant. Being journal to reflect the receivable for the government grant as it is reasonable that all conditions will be complied with assuming the revenue grant is not taxable. Where it is taxable then a deferred tax liability would be required to be recognised. If the grant is received since transition the journal above would be reversed in the year it was recognised under old GAAP (this assumes the accruals model is adopted). The amortisation on the capital grant will also need to be recognised assuming the accruals model is adopted. See example attached for the journals required for a revenue grant on transition (Example 95 – Reasonable That The Conditions For The Grant Will Be Complied With). If we take the above example and assume this was in the period since transition (i.e. the comparative year of the first set of FRS 102 financial statements), the journals would be to: Dr Receivable for grant Cr Other operating income in P&L if a revenue grant or Cr deferred income if a capital grant. Dr Tax in P&L if the revenue grant is taxable Cr Deferred tax liability. The amortisation on the capital grant will also need to be recognised assuming the accruals model is adopted. These journals will be posted to reserves and reversed in the following year assuming the grant is received. |
| Government grants are recognised as income over the periods necessary to match them with the related costs that they are intended to compensate, on a systematic basis.
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Where recognition criteria are met, entities have a choice between the performance and the accruals model for recognition which may result in grants being released to the profit and loss earlier.
Where the performance model is adopted on transition, it will need to be applied retrospectively to grants existing on the transition date. ‘An entity applying the performance model shall recognise grants as follows: a. a grant that does not impose specified future performance-related conditions on the recipient is recognised in income when the grant proceeds are received or receivable; b. a grant that imposes specified future performance-related conditions on the recipient is recognised in income only when the performance-related conditions are met; c. grants received before the revenue recognition criteria are satisfied are recognised as a liability. |
Where the accruals model is adopted on transition to FRS 102 no transition adjustments are required as this is identical to old GAAP.
However where an entity decides to adopt a performance model approach to accounting for government grants on transition, the company will need to apply this policy retrospectively as this model was not permitted under old GAAP. See attached an example of the transition adjustments required to account for a revenue grant under the performance model (Example 96 – Adoption Of The Performance Model – Revenue Grant). See attached an example of the transition adjustments required to account for a capital grant under the performance model (Example 97 – Adoption Of The Performance Model – Capital Grant). |
| This was not required under old GAAP. | Where loans have been provided to company’s at non-market rates, from Government agencies then these will have to be carried at amortised costs and accounted for in accordance with Section 11-Basic Financial Instruments. The amount received is present valued at the rate of interest that would be charged on such a loan over the same period. The difference between the amount received and the present value is posted as a credit to interest income in the profit and loss. The balance is then built up to the amount received over its term with the interest charge posted to an interest expense in the profit and loss. | It is rare that loans will be provided to companies at non-market rates by Government agencies. Where this arises a transition adjustment will be required. See attached an example of how this would be treated on transition. Note the example refers to directors however the government loan would be treated in the same way (Example 98 – Loans At Non-Market Rates On Transition). |
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