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Contents
24.1.1 Extract from FRS102: Section 24.1 – 24.3.
24.1.2.1 Definition of government grant.
24.1.2.2 Treatment of research and development tax credits and similar assistance.
24.1.2.3 Governments assistance interest free loans.
24.2 Recognition and measurement.
24.2.1 Extract from FRS102: Section 24.3A – 24.5.
24.2.2.2.2 Fair value defined.
24.2.2.2.2.1 Fair value where non-cash items provided by way of grants.
24.2.2.3 Accounting policy choice and impact of change.
24.3.1 Extract from FRS102: Section 24.5B.
24.3.2.1 Definiton of performance related conditions.
24.3.2.2 Difference in treatment between revenue and capital grants.
24.4.1 Extract from FRS102: Section 24.5C – 24.5G.
24.4.2.1.1 Requirement to identify the type of grant.
24.4.2.3.2 Grants receivable/receivable towards the cost of non-depreciable assets).
24.4.2.3.3 Capital grant examples.
24.5 Classification in the profit and loss.
24.6.1 Extract from FRS102: Section 24.5A.
24.7.1 Extract from FRS102: Section 24.6 – 24.7.
24.7.2.2.1 Example using an accruals model.
24.7.2.2.2 Example using the performance model.
24.7.2.3 Notes to the financial statements.
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24.2 Recognition and measurement
24.2.1 Extract from FRS102: Section 24.3A – 24.5
24.3A Government grants, including non-monetary grants shall not be recognised until there is reasonable assurance that:
(a) the entity will comply with the conditions attaching to them; and
(b) the grants will be received.
24.4 An entity shall recognise grants either based on the performance model or the accrual model. This policy choice shall be applied on a class-by-class basis.
24.5 An entity shall measure grants at the fair value of the asset received or receivable.
24.2.2 OmniPro comment
24.2.2.1 Recognition
Section 24.3A of FRS 102 states:
24.3A Government grants, including non-monetary grants shall not be recognised until there is reasonable assurance that:
(a) the entity will comply with the conditions attaching to them; and
(b) the grants will be received.
See application Section 24.3A of FRS 102 below:
Example 1: Recognition as a receivable
Company A has been approved to receive a government grant of CU50,000 to contribute towards the cost of employing 20 staff on a new department opened by the company. Approval was obtained during year 1. A condition as part of the grant is that the entity must create a non-distributable reserve equal to the amount of the grant to be received and the employees must be kept on for a minimum of 3 years. At the end of year 1 the company has employed the 20 employees but at year end has not created the non-distributable reserve. The company has sufficient distributable reserves to allow for the recognition of the non-distributable reserve. The company will receive the grant when the claim is made by the company. During year 2, the non-distributable reserve was created, and the formal claim was made to the government authority.
Given that the company has met the employee number requirement and all that had to be done was to create the non-distributable reserve and the company has the reserves to do this, it is reasonable for the company to assume that the conditions of the grant will be complied with and the grant will be received. (Which would meet the recognition criteria of Section 24.3A of FRS 102. In this case it may be appropriate to recognise the CU50,000 as a receivable at the year end of year 1. Whether this income can be recognised in the profit and loss or deferred on the balance sheet will depend on whether the performance model or the accruals model has been adopted by the company.
24.2.2.2 Measurement
24.2.2.2.1 Measurement rules
Fair value as defined in Appendix I of FRS 102 is ‘the amount for which an asset could be exchanged, between knowledgeable, willing parties in arm’s length transaction.
24.2.2.2.2 Fair value defined
As per Section 24.5 of FRS 102 government grant should be recognised at fair value of the asset received or receivable. It would normally be the amount of cash received but it may also include non-cash benefits e.g. land.
24.2.2.2.2.1 Fair value where non-cash items provided by way of grants
There are instances where governments will provide some non-cash items such as licenses, if this is the case, then the licenses should be recognised at their fair value together with the associated liability for the repayment of the grant under certain conditions if applicable.
24.2.2.3 Accounting policy choice and impact of change
As per Section 24.4 of FRS 102 there is an accounting policy choice to be decided upon namely the accruals model (see 24.4.2) or performance model (see 24.3.2). Whichever is applied it should be applied consistently to each class of grant. If a change in policy is made this would require a prior year adjustment to be made under Section 10 of FRS 102 (See 10.5.2)
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Examples
Example 1: Recognition as a receivable.
Example 2: Performance related model – revenue grant.
Example 3: Performance related model – revenue grant – conditions.
Example 4: Performance related model – revenue grant – no conditions.
Example 5: Performance related model – capital grant -conditions.
Example 6: Performance related model – capital grant – no conditions.
Example 6A: Performance related model – capital grant – no conditions.
Example 7: Accruals model – revenue grant.
Example 8: Accruals model – revenue grant 8
Example 9: Accruals model – capital grant – depreciable asset.
Example 11: Repayment of grant – capital grant – accruals model.
Example 12: Repayment of grant – revenue grant – accruals model.
Example 13: Repayment of grant – capital grant – performance model.
Example 13A: Repayment of grant – capital grant – performance model.
Example 14: Repayment of grant – revenue grant – performance model.
Example 15: Repayment of grant – revenue grant – performance model.
Example 16: Extract from an accounting policy note in the financial statements.
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