FRS 102 and Accounting for Government Grants

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Below is a comparison chart of the main differences between old and new Irish GAAP as regards the definitions, initial recognition, measurement and presentation of grants received from government.

Topic

Old Irish GAAP

New Irish GAAP FRS 102

 

 

 

Definition

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 enterprise. [SSAP 4 paragraph 22].

The same method as old Irish GAAP, except that grants exclude forms of assistance that cannot reasonably be valued or distinguished from normal trading of the entity. [FRS 102 paras 24.1-24.2].

Initial recognition and

subsequent measurement

Grant income is not recognised unless there is

reasonable assurance that the entity will comply with the conditions of the grant and the grant will be received. [SSAP 4 para 24].

 

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 (accruals model).

 

Government grants received as compensation for expenses or losses already incurred (or for immediate financial support) are recognised as income in the period in which the grant becomes receivable. [SSAP 4 para 23].

Likewise, new Irish GAAP prohibits recognition of

grant income unless there is reasonable assurance that the entity will comply with the conditions of the grant and the grant will be received. [FRS 102 para 24.3A].

 

Once these criteria are met, there is a choice between the performance and the accruals model for recognition and measurement. [FRS 102 para 24.4].

 

The accruals model is the same as old Irish GAAP. [FRS 102 paras 24.5C-24.5G].

 

Please note that the FRS 102 Charities SORP specifically bans the use of the accruals model [Charities SORP FRS 102 para 5.10].

 

The performance model requires an entity to

recognise government grants according to the nature of the grant. No distinction is made between income and capital grants under this model.

 

Recognition is as follows:

A grant that does not

impose specified future

performance conditions

on the recipient is

recognised in income

when the grant proceeds

are receivable.

 

A grant that imposes

specified future

performance conditions

on the recipient is

recognised in income

only when

the performance

conditions are met.

 

Grants received before the income recognition criteria are satisfied are recognised as a liability and released to income when all attached

conditions have been complied with.

[FRS 102 para 24.5B].

Deductibility against related capital assets.

Government grants made as a contribution towards expenditure on fixed assets may either be:

 

1.       treated as deferred

income and credited to the profit and loss account over the expected useful economic life of the related asset; or

 

2.       deducted against the cost of the related asset, with a consequent reduction in the annual deprecation charge.

 

Those entities applying Irish company law are prohibited from applying the second option. [SSAP 4 para 15].

Grants are never deducted against related assets. [FRS 102 para 24.5G].

Measurement

Where a government grant takes the form of a transfer of non-monetary assets, the amount of the grant is the fair value of the assets transferred. [SSAP 4 para 16].

Grants are measured at the fair value of the asset received or receivable. [FRS 102 para 24.5].

Grants repayable

A government grant that becomes repayable is accounted for as a revision to an accounting estimate (that is, in the current period).

 

Repayment of a grant related to income is applied against any unamortised deferred credit set up in respect of the grant, and then any excess is recognised immediately as an

expense. [SSAP 4 para 27].

Under FRS 102, if a grant becomes repayable, it is

recognised as a liability where the repayment meets the definition of a liability. [FRS 102 para 24.5A].