Share this content

Treatment for non-government grants

Treatment for non-government grants

If an entity receives fixed assets as grants from an individual or business entity, what is the accounting treatment for this transaction against the backdrop of the grant not being a government grant, which is provided for under International Accounting Standard 20(IAS 20).
Should the value of the fixed assets received be credited to a grants account and the corresponding debit taken to fixed assets, with annual credits being made to the Income statement over the life of the fixed Asset (in otherwords no depreciatio being charged at all!!!!) such that the grant account would have been released in its entirety by the end of the estimated useful life of the Fixed Asset?
Also, what should be the amount that should be recognised as being the value of the asset given as grant- i.e. is it the market value subsisting at the date of the grant or otherwise?
Please provide me with the Reporting framework/standard (UK and/or International) for this type of transaction.
Thanks in anticipation of a swift reply.

Lamin N'jai


Please login or register to join the discussion.

By simon68
03rd May 2007 13:58

Fair Value
If under the terms of the grant, the entity that receives the fixed assets has to give something in return. That something in return is the fair value. For example if the entity is obliged to forgive debts in the amount of £500 owing from the grantor, then £500 is the fair value of the fixed assets.

£500 is the fair valuation of the fixed assets to both parties in the transaction.

Thanks (0)
By Anonymous
03rd May 2007 11:52

Fixed Assets
It’s more appropriate to say this free contribution of fixed assets as a gift rather than grant. If it is a grant then there should be monetary value attached to the assets. It depends on how you use the fixed assets. If it is being put in use for generation of revenue, then it should have an economic life/value. When there is a close down sale in one of the catalogue shop where you found a bargain item of say lawn-mover offering for sale at only 1 pound and you bought it. Would you record the cost as 1 pound in your books? What if it is being sold at even less i.e. 1 penny?

Thanks (0)
01st May 2007 13:37

Fixed asset at nil cost
Assuming this is a genuine gift, it would seem you have acquired a fixed asset at no cost, so I would record it as such - ie make no entry at all, unless you revalue that class of assets.

IAS 20 suggests this is acceptable for non monetary government grants (para 23)

If there is any consideration (non monetary, future sales, etc...) you should record the asset at the value of this consideration - and if you can't measure it, the fair (market) value of the asset would be a good proxy. (IAS 16 para 6 / 7)

You can of course disclose it in your fixed assets note / directors report / cash flow statement (as a significant non-cash transaction).

I think there are different rules for charities in the SORP.


Thanks (0)
By neileg
01st May 2007 15:29

Ordinarilly, FRS15 requires you to value assets at cost, unless the class of asset is revalued. Thus if the aquisition cost is zero, there's nothing to carry in the balance sheet. So if the asset is transferred with good title without encumbrances, you don't capitalise.

Now, if this asset is provided as a grant, I would suspect that there are conditions attaching to the grant, and that if these conditions are breached then there will be some liability to repay. In this case, you need to have regard to these conditions which may give rise to a contingent liability. This may lead you to need to recognise both the asset and the liability and to write these off over the life of the obligation. This may not be the same as the market value of the asset or the useful life of the asset.

In public sector accounting, there is a requirement to carry assets at fair value. Under the 2006 SORP, this would require the asset to be capitalised and depreciated and the asset value treated as a grant and amortised.

Thanks (0)
By Anonymous
03rd May 2007 09:59

just a thought that FRS5 might have an input here..standing back from this it may be more useful to the reader of the accounts to reflect the substance of the transaction...maybe linked to an accounting capitalise at fair value and depreciate/amortise grant on same basis.Certainly may be appropriate if there exists any counter obligation..e.g. loss of an asset of economic benefit or some other financial CAs for the client and grantor.

Thanks (0)