I do the books for a registered charity. They recently received some grant money (not from the government - from other charity organisations.) which they have used towards purchasing an asset for the business. My question is, how should this grant money be posted in the accounts? I have spoken to the charities commission, who have said the fixed asset should be shown at its full purchase price in the Balance Sheet, and depreciated as normal. But I am getting confused as to where the grant money needs to sit. Initally I thought it would go as a write down against the asset purchase. After all, the business has only put up a percentage of the asset cost, but the Charity Comm. has said no to this. It is currently sitting as a Liability in the Balance Sheet, in case the charities which donated the money ever want it back! But this surely needs to be written down in some way? Any advice would be much appreciated. Thanks.
the mention of a charity here might put some people off answering but the reality is that the recipient is immaterial.
Guidance for this can be found within SSAP4 which deals with grants but in short there are basically two different sorts of grant. Capital and revenue based grants.
What you need to ask is why the grant was granted? Was it for a specific item, were there any provisions attached to the grant?
Where there is a risk that the grant might need to be repaid if the provisions of the grant are not met then a liability will need to be established for the proportion of the grant that may need to be repaid.
Where the grant is revenue based then take straight to the P&L as other income (don't forget that this may create a liability).
Where the grant is capital based take to a reserve and release on purchase of the asset to which it relates.
Note that this reserve should be ring fenced to ensure that the charity does not use it for purchases or costs other than those for which the grant was intended.
As noted above, for further details have a look at SSAP4 which is aimed at the treatment of government grants but is actually applicable to all grants.
Hope that this helps,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
