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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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24.6 Repayment of grants
24.6.1 Extract from FRS102: Section 24.5A
24.5A Where a grant becomes repayable it shall be recognised as a liability when the repayment meets the definition of a liability.
24.6.2 OmniPro comment
The repayment of a grant liability is accounted for as a change in estimate and as a result is adjusted prospectively for any liability relating to the repayment as stated in Section 24.5A of FRS 102. No prior year restatement is required. Where the debit in the profit and loss is classified depends on whether it is so large to be called exceptional in nature, if so it may be shown as an exceptional item. See example below illustrating how the repayment of a grant should be accounted for:
Example 11: Repayment of grant – capital grant – accruals model
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. If not then the full amount of the grant full is amount repayable. The useful life of the plant itself is 50 years. Under the conditions of the grant the full amount is repayable if the 20 year condition is not met.
At the end of year 10, the company made a decision to close the manufacturing plant. The NBV of the grant at the end of year 10 is CU80,000 (CU100,000/50yrs * 40yrs).
As at the end of year 10, the repayment of the grant meets the definition of a liability as Company A has a present contractual obligation to repay the grant as a result of a past event (that being the receipt of the grant) that can be reliably measured.
Under the accruals model the journals required for the recognition of the liability is:
| CU | CU | |
| Dr Profit and Loss | 20,000 | |
| Cr Deferred Revenue/Grant Liability (CU100,000 less carrying amount of grant liability at end of year 10 of CU80,000) | 20,000 |
Being journal to recognise liability for the repayment of the grant
Example 12: Repayment of grant – revenue grant – accruals model
Company A received a grant of CU50,000 for relocating to a premise that is situated in a disadvantaged location. The condition of the grant dictates that the Company must remain in the premises for a minimum of 3 years and if not the grant is fully repayable. The grant was released to the profit and loss in year 1 to match the relocation costs.
At the end of year 2, the company moved out.
As at the end of year 2, the repayment of the grant meets the definition of a liability as Company A has a present contractual obligation to repay the grant as a result of a past event (that being the receipt of the grant) that can be reliably measured reliably
Under the accruals model the journals required for the recognition of the liability is:
| CU | CU | |
| Dr Profit and Loss | 50,000 | |
| Cr Deferred Revenue/Grant Liability | 50,000 |
Being journal to recognise liability for the repayment of the grant which was previously recognised in the P&L
Example 13: Repayment of grant – capital grant – performance model
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. If not then the full amount of the grant is repayable. 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.
At the end of year 10, the company made a decision to close the manufacturing plant. The carrying amount of the liability at that date was CU50,000 (i.e. CU100,000/20 yrs * 10 yrs).
As at the end of year 10, the repayment of the grant meets the definition of a liability as Company A has a present contractual obligation to repay the grant as a result of a past event (that being the receipt of the grant) that can be reliably measured. No further provision is required as the carrying amount of CU50,000 reflects the amount repayable.
Example 13A: Repayment of grant – capital grant – performance model
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. If not then the full amount of the grant is repayable. The useful life of the plant itself is 50 years. Under the conditions of the grant, if the company does not remain in the factory for 20 years the full grant is refundable.
At the end of year 10, the company made a decision to close the manufacturing plant.
As at the end of year 10, the repayment of the grant meets the definition of a liability as Company A has a present contractual obligation to repay the grant as a result of a past event (that being the receipt of the grant) that can be reliably measured.
Under the performance model the liability of CU100,000 is still on the balance sheet as it cannot be released until after 20 years, hence no further provision is required.
Example 14: Repayment of grant – revenue grant – performance model
Company A received a grant of CU50,000 for relocating to a premises that is situated in a disadvantaged location. The condition of the grant dictates that the Company must remain in the premises for a minimum of 3 years. Under the conditions of the grant the amount repayable if the 3 year condition is not met is reduced for every year the company stays in the premises.
At the end of year 2, the company moved out. At that date the carrying amount of the grant liability was CU16,667 as the grant is being released evenly over the three year period.
As at the end of year 2, the repayment of the grant meets the definition of a liability as Company A has a present contractual obligation to repay the grant as a result of a past event (that being the receipt of the grant) that can be reliably measured. No further provision is required as the carrying amount of the liability equals the amount repayable.
Example 15: Repayment of grant – revenue grant – performance model
Company A received a grant of CU50,000 for providing employment for 20 individuals. The condition of the grant dictates that the Company must maintain the employees in full time employment for a minimum of 3 years and if not the grant is fully repayable.
At the end of year 2, the company laid the employees off.
As at the end of year 2, the repayment of the grant meets the definition of a liability as Company A has a present contractual obligation to repay the grant as a result of a past event (that being the receipt of the grant) that can be reliably measured.
Under the performance model as the grant cannot be recognised until after the end of year 3, no journal is required as the grant of CU50,000 is already included on the balance sheet as a liability.
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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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