Deferred Income

mike1983

Good Morning Everybody,

I just need to be sure what I am doing is correct!!

I'm preparing accounts for a Community Interest Company (CIC) and the only receipt they have received during the year is a lottery grant for £10,000.

As at year end they had spent around £4,000 of it.

Am I right in saying that the remaining £6,000 must be debited to 'Grants Received' and credited to 'Deferred Income' on the balance sheet? This would be complying with standard 'SSAP 4'.

Just to clarify the grant is deemed to be a government grant and is not taxable.

Your thoughts on this would be most appreciated.

Thank You

jamesm96

mike1983 wrote: »

Good Morning Everybody,

I just need to be sure what I am doing is correct!!

I'm preparing accounts for a Community Interest Company (CIC) and the only receipt they have received during the year is a lottery grant for £10,000.

As at year end they had spent around £4,000 of it.

Am I right in saying that the remaining £6,000 must be debited to 'Grants Received' and credited to 'Deferred Income' on the balance sheet? This would be complying with standard 'SSAP 4'.

Just to clarify the grant is deemed to be a government grant and is not taxable.

Your thoughts on this would be most appreciated.

Thank You

Hi Mike,

Assuming both 'Grants Received' and 'Deferred Income' are Balance Sheet codes then yeah that's how I remember it; and then you release the 'deferred income' to the P&L as and when the expenditure is incurred.

mike1983

Thank you

Thanks for your reply.

Just needed to ensure that I was doing it right.

When I did this, it left no profit and no net assets, but the company wasn't trading as a trade,
and the grant was the only receipt intended for a future project.

Thanks for your time. It's much appreciated.

stevo5678

Just to round this discussion, I would just like to point out that you don't necessarily release the grant from deferred income as a matter of routine.

There is a reason that there are restricted funds c/f (not restricted income) in many charities accounts.

Technically the most desirable treatment is to release grants in full into the SOFA in the year and c/f as restricted funds. However many get confused with the accruals concept of matching and go the deferred route.

You should only treat certain unspent grants as deferred if the contract states that the funds must be spent in a certain way AND details the time span which is AFTER THE YEAR END.

If there is no designated time span then you should release it into restricted funds and c/f the unspent balance.

EG The lottery give you £25,000 to conduct repairs to a premises in Jan 12 but do not say you need to spend this over the course of a year and do not state a formal time limit to spend it. In this case you should NOT treat it as deferred.

However if they said you can spend £6250 per quarter then you would treat 3/4 as deferred.

Despite this I don't think it would cause that many issues maintaining the deferred route as it is a common treatment just not the technically correct one. I have seen many charities use both methods but as charity auditors we have been advising the restricted funds c/f approach for a long time

Hope this makes sense.

mike1983

Thanks Stevo,

I was thinking of laying the accounts out in SOFA format, but I thought they were only to be used for registered charities and not CICs.

The time span given was 12 months which was after year end. Therefore I put the unspent amount to deferred income.

Do you think I should have used SOFA and c/f the unspent amount as restricted income?

Companies House have accepted the accounts in the format given, but it would be useful to know for next time as I have another CIC lined up.

Regards

Mike

stevo5678

Hi Mike, I dived in a little thinking of Charities. If you don't have designated restricted funds as part of the 'retained earnings' then the deferred treatment would be ok.

I think it is fine how you are showing it as long as you are happy that the grant specifies that the funding relates to after the year.

I wouldn't worry at all, but it's always worth considering the deferred Vs Restricted argument.

mike1983

Thanks Stevo,

I appreciate your comments and time.