Capital Grants in Charity accounts

Capital Grants in Charity accounts

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Where are capital grants included in the balance sheet of a company limited by guarantee, which is also a charity? I have recently undertaken the work of a company set up this way and  received the last accounts prepared by the previous accountants, their Income and Expenditure account shows a credit of  amortisation of a capital grant but their Balance Sheet does not  show a debit of the amortisation or indeed the capital grant itself, can this be right? 

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By Towards excellence
21st Jun 2012 10:04

From memory, the SORP which applies accounting standards to charities, requires three aspects for income to be recognised (whatever its purpose):

Entitlement - is the charity entitled to the funds?

Certainty - is it reasonably certain that the funds will be received?

Measurement  - can the amount of the income be reliably measured?

Once these criteria are met, the income should be recognised in the accounting period, so I do not think this should then spread over the life of the asset(s) to which it relates.

I know this does not exactly answer your question, but it's a start and let's see what others contribute.

SA

 

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By Chris Smail
21st Jun 2012 11:15

Read the SORP

What you describe seems wrong on several counts. For starters a charity does not have an I&E account it has a SORP.

Disclosure and treatment of the grant will depend upon the terms of the grant and possibly the circumstances under which it was received. It is quite possible the grant should have been entirely credited to income when received.

Have you thought of asking you predecessors, this often results in amusing answers when dealing with charitable companies and frequently a report to Ch Com

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Replying to gbuckell:
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By Towards excellence
21st Jun 2012 11:29

I beg to differ on the income and expenditure point - if a charity is constituted as a limited company, the heading that I recall is 'Statement of Financial Activities, incorporating Income & Expenditure account' to satisfy the 'Companies Act' rules - dont know if this has changed recently, but I distinctly remember it in disclosure checklists.

SA

 

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By PaulMM
21st Jun 2012 12:54

Not Amortised

As per the Charity SORP paras 110 and 111, grants received for the purchase of fixed assets should be recognised as income in full as and when they are receivable, and should not be amortised over the life of the asset.

 

If the grant places a restriction on use of the asset then it is probable that you should set up a restricted fund, reducing over the life of the asset (if it is not restricted you could use a designated fund to do the same thing).

 

Paul

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By Chris Smail
21st Jun 2012 13:13

Towards excellence:- Pedantry maybe but

the current heading we use is 'SOFA (incorp I&E)'

The format is certainly a SORP based SOFA  not a companies act based layout or an I&E we would put on a sole trader, if only because of the use of funds and the different rules for recognising income & expenditure.

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