Grant funded asset

PGM

There was a previous thread that discussed the method of either feeding grant funding in to match off against depreciation or to depreciate in one go.

A previous accountant has done it in one go, which I think is right. But, he's put the grant straight to the asset code, not the depreciation code.

So in the notes to the accounts, where it shows the asset & depreciation values to get to NBV, the asset isn't included in those values.

Does this seem right?

Steve Collings

You need to be careful with this. You would normally write the grant off to the P&L over the expected useful life of the asset. If this is a company scenario, SSAP 4 permits the offsetting of the grant against the cost of the asset BUT the Companies Act actually prohibits such a treatment where the company is preparing Co Act accounts (i.e. incorporated entities). Therefore capital-based grants should be treated as deferred income (and split between current/non-current accordingly). You would then release the grant to the P&L over the expected useful life of the asset - in other words to match the income against the depreciation charge in the P&L.

The offsetting of the grant against the cost of the equipment will end up with the same result, because the depreciation charge will be lower - however it is technically "unlawful".

Regards
Steve

PGM

Thanks Steve, I couldn't find the previous thread, I vaguely remember discussing this. I think you agreed its ok to depreciate fully in one go, because we're a CIC company.

Assuming its a 10k asset, would you put 10k in assets, and the 10k grant in accum depn or would you put both in assets. Just how to display it on the face of the accounts.

stevef

Slightly different approach in Local Government (with similar end result) as we are no longer allowed to hold a Deferred Grant account and can not charge depreciation against tax payers funds.

We leave the asset at full value in the balance sheet and charge the Comprehensive I&E with depreciation calculated on full asset value. The whole grant is shown as income in the CI&E in the year received.Then just to make life interesting ('cos the public sector never makes life easy), through the Movement in Reserves Statement, we reverse the depreciation charge out of the CI&E and charge it to the Capital Adjustment Account (CAA) replacing it with a charge to CI&E and a credit to CAA for a thing called Minimum Revenue Provision (MRP), calculated on the value of assets to be funded by debt or finance lease (grant funded and donated assets are excluded when calculating MRP). That just leaves the grant itself to be sorted out. This is reversed out of the CI&E and credited to the CAA (overtime will account for the difference in depreciation and MRP).

This all sounds 'orribly complicated and messy, but is the only way we can think of which charges depreciation to the accounts and records grant income as revenue as required by the standards, but only charges MRP and correctly defers grant income as required by local government finance legislation.

Steve Collings

PGM wrote: »

I think you agreed its ok to depreciate fully in one go, because we're a CIC company.

I don't think it was me that advised this.

Assuming its a 10k asset, would you put 10k in assets, and the 10k grant in accum depn or would you put both in assets. Just how to display it on the face of the accounts.[/QUOTE]

I don't agree with the crediting of the grant to depreciation simply because a grant is not depreciation! I'm presuming you have the grant and the asset separately, hence:

Grant receipt

Debit bank 10k
Credit deferred income creditor 10k

Purchase of asset
Credit bank 10k
Debit asset 10k

If your accountant wishes to write off the cost of the asset in full (I'm not saying its right or wrong to do this) then you would credit 10k to asset depreciation and then debit P&L with 10k depreciation charge. You could then debit deferred income creditor 10k and credit grant income in the P&L 10k (alternatively if writing off all in one year just debit bank and credit grant income).

Cheers

Steve

PGM

Steve Collings wrote: »

I'm presuming you have the grant and the asset separately,

Thats the problem, out asset code has both the asset and grant in it, so it nets off to exactly 0.

Our auditors have ok'd fully depreciating in one year. What worried me most was there's no sign of either the asset nor grant in our accounts.

Steve Collings

The asset should be shown as an addition and fully depreciated in the accounts. The P&L should show the grant being credited as grant income and a full year's depreciation charge. Whilst it all nets off to nil, it should all be posted in the correct place and grant income does not get credited to depreciation because this won't show a true picture in the P&L a/c

All the best

steve

PGM

Steve Collings wrote: »

The asset should be shown as an addition and fully depreciated in the accounts. The P&L should show the grant being credited as grant income and a full year's depreciation charge. Whilst it all nets off to nil, it should all be posted in the correct place and grant income does not get credited to depreciation because this won't show a true picture in the P&L a/c

All the best

steve

Thats great thanks Steve. Appreciate your time to explain the awkward way our accounts have been done, your explaination does sound much better!