[et_pb_section admin_label=”Header – All Pages” global_module=”1221″ transparent_background=”off” background_color=”#1e73be” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”||0px|”][et_pb_row global_parent=”1221″ admin_label=”row”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ admin_label=”Post Title” title=”on” meta=”off” author=”on” date=”on” categories=”on” comments=”on” featured_image=”off” featured_placement=”below” parallax_effect=”on” parallax_method=”on” text_orientation=”left” text_color=”light” text_background=”off” text_bg_color=”rgba(255,255,255,0.9)” module_bg_color=”rgba(255,255,255,0)” title_all_caps=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid” title_font=”|on|||” title_font_size=”35″ custom_padding=”10px|||”] [/et_pb_post_title][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” global_module=”1228″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”0px||0px|” padding_mobile=”on” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row global_parent=”1228″ admin_label=”Row” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”0px||0px|” padding_mobile=”off” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ admin_label=”Text” background_layout=”light” text_orientation=”left” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”https://uk.frs102.com/members/premium-toolkit/section-23/” type=”big” color=”red”] Return to Section 23 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Transition exemptions
FRS 102 provides no exemptions with regard to accounting for government grants so retrospective adjustments will be required. Given that old GAAP also used the accruals model, where the accruals model is chosen under FRS 102 there will be no transition adjustments.
However where an entity decides to adopt the policy of applying the performance model, then this may require transition adjustments.
Principal transition adjustments
1) Adoption of a policy of recognising grants on a performance model basis
As stated above, where an entity decides to adopt a performance model approach to accounting for government grants, the company will need to apply this policy retrospectively as this model was not permitted under old GAAP.
Example 16: Adoption of the performance model – revenue grant
Company A’s date of transition is 1 January 2014. The company received a revenue grant on 1 January 2013 of CU10,000 for the cost of employing 10 employees. A condition of the grant states that the employees must be kept on for a minimum of 2 years. Under old GAAP Company A recognised the full CU10,000 on the basis that the conditions of the grant were likely to be achieved and that the CU10,000 grant was set against the first years cost of the employees. Assume the grant was taxable when released in 2013 and the tax rate is 10%
A transition adjustment would be required as follows:
At 1 January 2014
|
|
CU |
CU |
|
Dr Profit and Loss Reserves |
10,000 |
|
|
Cr Deferred Revenue/Grant Liability |
|
10,000 |
Being journal to recognise the deferral of the grant under the performance model as the grant cannot be recognised in the P&L until after 31 December 2015.
|
|
CU |
CU |
|
Dr Deferred Tax Asset |
1,000 |
|
|
Cr Profit and Loss Reserves (CU10,000*10%) |
|
1,000 |
Being journal to reflect deferred tax for tax previously paid in 2013 assuming the grant was taxable.
Year ended 31 December 2014
No journals required other than the carry forward of the opening balance sheet journal above.
Year ended 31 December 2015
|
|
CU |
CU |
|
Dr Deferred Revenue/Grant Liability |
10,000 |
|
|
Dr Deferred Tax in P&L |
1000 |
|
|
Cr Other Operating Income |
|
10,000 |
|
Cr Deferred Tax Asset |
|
1,000 |
Being journal to derecognise the grant liability and the related deferred tax as the performance conditions are met
Note a similar adjustment would be required if there was a grant received in year ended 31 December 2014.
Example 17: Adoption of the performance model – capital grant
Company A received a grant of CU100,000 towards the cost of constructing a factory 10 years prior to transition. Transition date is 1 January 2014. 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 old GAAP, the accruals model was used and the NBV of the grant liability at the transition date was CU80,000. The amortisation per year was CU2,000. 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. Assume the factory did not qualify for capital allowance purposes and therefore there is no deferred tax impact.
On transition to FRS 102 the following adjustments would be required:
|
|
CU |
CU |
|
Dr Deferred Revenue/Grant Liability (CU80,000-CU50,000*) |
30,000* |
|
|
Cr Profit and Loss Reserves |
|
30,000 |
Being journal to reflect correct opening balance utilising the performance model
*CU100,000/20 yrs being length of performance condition * 10 yrs being number of years left to the expiration of the performance condition= CU50,000. Therefore the adjustment required on transition is the CU80,000 carrying amount under old GAAP less this CU50,000.
Journal required for year ended 31 December 2014 assuming journals above are carried forward
|
|
CU |
CU |
|
Dr Deferred Revenue/Grant Liability |
3,000 |
|
|
Cr Profit and Loss – Other Operating Income (CU5,000-CU2,000) |
|
3,000* |
*Total yearly amortisation on the grant under the performance model is CU5,000 (CU100,000/20 yrs). The adjustment required is the CU5,000 less the CU2,000 charged in the 31 December 2014 TB under old GAAP
Journal required for year ended 31 December 2015 assuming journals above are carried forward through reserves.
The same journals will be required as 31 December 2014 above.
If the factory did qualify for capital allowances purposes the deferred tax would need to be recognized in the above journals.
2) Government loan provided to entities at non-market rates
Where loans have been provided to company’s at non-market rates, then these will have to be carried at amortised costs and accounted for in accordance with Section 11-Basic Financial Instruments. An example of such a transition adjustment if this is the case is included in Section 11.
3) Government grants recognised when it is reasonable all conditions for the grant will be complied with compared to old GAAP where all the conditions had to be complied with
Example 18: Reasonable that the conditions for the grant will be complied with
Company A’s date of transition is 1 January 2014. The company did not recognise a revenue grant on 31 December 2013 as all the conditions had not been complied with and therefore it could not be recognised under old GAAP however it was reasonable that all the conditions would be complied with. The grant was received during the 31 December 2014 year and was recognised at that date. Under FRS 102 this would have been allowed to be recognised as an asset on 1 January 2014. The grant was a revenue grant of CU10,000 for the cost of carrying out research. There were no conditions to be complied with on receipt of the grant as the work was performed. Under FRS 102, Company A should have recognised the full CU10,000 on the basis that the conditions of the grant were likely to be achieved and that the CU10,000 grant was set against the cost of the work. Assume the grant was taxable when released in 2014 and the tax rate is 10%
A transition adjustment would be required as follows:
At 1 January 2014
|
|
CU |
CU |
|
Dr Receivable for Government Grant |
10,000 |
|
|
Cr Profit and Loss Reserves |
|
10,000 |
Being journal to recognise the receivable for the grant and the associated income
|
|
CU |
CU |
|
Dr Profit and Loss Reserves (CU10,000*10%) |
1,000 |
|
|
Cr Deferred Tax Liability |
|
1,000 |
Being journal to reflect deferred tax for tax to be paid on this grant in the future.
31 December 2014 journals assuming the above journals were posted to reserves etc
|
|
CU |
CU |
|
Dr Other Operating Income |
10,000 |
|
|
Cr Receivable for Government Grant |
|
10,000 |
Being journal to derecognise the receivable for the grant and set it against the grant recognised in the P&L under old GAAP as it has been recognised on transition under FRS 102
|
|
CU |
CU |
|
Dr Deferred Tax Liability |
1,000 |
|
|
Cr Deferred Tax in P&L |
|
1,000 |
Being journal to reverse deferred tax on the grant receipt as it was taxed in 2014.
If a similar situation occurred at 31 December 2014 the journals included under the 1 January 2014 would be posted in 31 December 2014 year with the credit going to other operating income in the P&L. The 2015 journals would be the same as these shown at the 31 December 2014 in the example above.
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]