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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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24.3 Performance model
24.3.1 Extract from FRS102: Section 24.5B.
24.5B 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.
24.3.2 OmniPro comment
24.3.2.1 Definiton of performance related conditions
Appendix I of FRS 102 defines a performance-related condition as ‘a condition that requires the performance of a particular level of service or units of output to be delivered, with payment of, or entitlement to, the resources conditional on that performance.
In essence the grant can be recognised as income in the profit and loss when the performance condition is met as per Section 24.5B of FRS 102 (until then it must be deferred). If there are no performance conditions then the grant is recognised in revenue immediately. See examples below for further consideration
Example 2: Performance related model – revenue grant
Company A has been approved to receive a government grant of CU50,000 to contribute towards the cost of employing 20 staff for a new department opened by the company. Approval was obtained during year 1. A condition as part of the grant is that the employees must be kept on for a minimum of 3 years and the entity must create a non-distributable reserve equal to the amount of the grant to be received.
The company made a formal claim for the CU50,000 during year 2 and the grant was received.
Given the condition of the grant is that the employees must be retained for a minimum of 3 years and a non-distributable reserve should be created, the CU50,000 cannot be recognised in the profit and loss until the performance conditions are met.
Therefore, on receipt of the CU50,000 in year 2, the grant would be deferred as the 3 year condition has not been met as required by Section 24.5B at FRS 102. The journal to be posted would be:
| CU | CU | |
| Dr Bank | 50,000 | |
| Cr Deferred Revenue | 50,000 |
Only at the end of year 3, can the CU50,000 be recognised as a credit in the profit and loss as all the conditions are met. Although the non-distributable reserve has been created before then not all conditions of the grant has been met.
Example 3: Performance related model – revenue grant – conditions
Take example 2, and assume the conditions are such that the amount repayable is reduced by 1/3 for every year elapsed.
In this situation, assuming the likelihood of meeting the conditions and obtaining the grants is reasonable at the end of year 1 (as required by Section 24.3A of FRS 102 and illustrated in example 1), then the amount equal to CU16,667 (CU50,000/3) should be credited to the profit and loss each year.
Example 4: Performance related model – revenue grant – no conditions
Take example 2, and assume there are no conditions attached to the grant, the full CU50,000 can be recognised in year 1.
Example 5: Performance related model – capital grant -conditions
Company A received a grant of CU100,000 towards the cost of constructing a factory. A condition of the grant is that the Company continues to utilise the manufacturing plant for a period of 20 years. The useful life of the plant itself is 50 years. Under the conditions of the grant the amount repayable if the 20 year condition is not met is reduced for every year the company stays in the factory.
Under the performance model as per Section 24.5B(b) of FRS 102, the grant can be recognised evenly in the profit and loss over the 20 years of CU5,000 (i.e. CU100,000/20 years).
Example 6: Performance related model – capital grant – no conditions
Take example 5, and assume the full amount is repayable if the company vacates within the 20 years.
In this case the CU100,000 would remain as a liability on the balance sheet for 20 years and then released an expiration of that time as per Section 24.5B(b) of FRS 102.
Example 6A: Performance related model – capital grant – no conditions
Take example 5 and assume there are no conditions attached to the grant, the full CU100,000 can be recognised in year 1.
24.3.2.2 Difference in treatment between revenue and capital grants
There is a difference on the recognition criteria to the profit and loss between revenue and capital grants under the accrual model. See 24.4.2.1.1 for an explanation of the treatment for a capital and a revenue grant. There is no difference under the performance model.
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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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