Section 19 – Government Grants

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Section 19 – Overview

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Section 19: Government Grants

Summary

Section 19 deals with the recognition, measurement and disclosures for government grants. 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.

What is new when compared to FRSSE/old GAAP?

Government grants are recognised when there is reasonable assurance the entity will comply with the conditions to the grant and the grants will be received. This contrasts with old GAAP/FRSSE, where they could only be recognised when all the conditions for receipt had been complied with. This will allow an entity to recognise grants earlier.

What is new when compared to FRS 102?

Section 19 only permits grants to be recognised under the accruals model. It does not permit the use of the performance model. FRS 102 on the other hand gave a choice to recognise grants under the accruals model or the performance model.

What is different compared to FRSSE/old GAAP?

Section 19 is narrower than SSAP 4 (old GAAP/FRSSE) as Section 19 applies to government grants only. Section 19 does not apply to any other form of government assistance.

What are the key points?

The government grant is recognised at their fair value when there is reasonable assurance the entity will comply with the conditions of the grant and that the grant will be received.

Grants are recognised in the profit and loss account under the accruals model.

Accruals model allows recognition of the grant:

Over the expected life of the asset and the amount deferred shown as a liability on the balance sheet; or
Over a systematic basis over the period the entity recognises the cost where the grant is revenue in nature.
Where expenses have already been incurred and the grant received afterwards; the grant is recognised as income within ‘other income’ in the profit and loss when it becomes receivable.

A capital grant received cannot be deducted from the cost of the asset it must be classified as a liability.

Provision is included for repayment of a grant where it meets the requirements of a liability under Section 16-Provisions.

What do accountants need to do?

Be aware of the differences between old GAAP/FRSSE/FRS 102 and Section 17 and advise clients of the differences.

Advice clients who have previously applied the performance model under FRS 102 of the possible adjustments required on transition to FRS 105 as the performance model will no longer be permitted. This adjustment will need to be made retrospectively. Advise of the possible impact on distributable reserves as a result of the adoption of the accruals model.

Consider the transition adjustment required if grants have been received prior to the date of transition. This may have a positive impact on distributable reserves.

What do companies need to do?

Be aware of the differences between old GAAP/FRSSE/FRS 102 and Section 18.

Consider the transition adjustment required if grants have been received prior to the date of transition. This may have a positive impact on distributable reserves.

Assess the impact of the change from the performance model to the accruals model (applicable for entities transitioning from FRS 102 only).

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