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Capital Grant for non-depreciable assets

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My client has received a capital grant previously and this was posted to Deferred income. However this grant was for building improvements, and my client's depreciation policy is not to depreciate buildings. Normally i would release the deferred income to the P&L over the useful life of the asset ie at the same rate as depreciation. How should i release this deferred income to the P&L in this instance, where there is no depreciation expense to fulfil the Matching Principle of government grants. I have checked the original expenditure and it does qualify as capital expenditure and so the grant is definitely not a revenue grant.

I have checked FRS102 section 24, and IAS 20 and neither have anything on this

The only thing i can think off is that the improvements should have been added as a seperate class of asset and depreciated?? would this be correct or am i missing something?

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By Paul Crowley
20th Aug 2021 16:00

If grant is for the cost of the building improvements and the building improvements have happened then in reality the improvements were at less cost to the company as a result of the grant

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By paul.benny
20th Aug 2021 17:24

Firstly, why is your client not depreciating buildings? FRS102 permits either cost model or revaluation model. There is no general provision exempting buildings from depreciation - see FRS102.17.16.

Secondly, what's the nature of the improvements? The building may have a long life but the improvements less so. As you suggest, the improvements may be a separate asset category.

FRS102.24.5F requires capital grants to be amortised over the life of the asset. I see no reason for that not to apply if assets are being revalued - you can still estimate the useful life.

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Replying to paul.benny:
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By DKB-Sheffield
20th Aug 2021 18:24

paul.benny wrote:

The building may have a long life but the improvements less so.

I agree. Without knowing what the "improvements" are, it is hard to comment. However, the majority of government grants that come to mind are for improvements that have a finite life (even if that is 30 years).

One exception I can think of would be the restoration of the structure of an ancient monument/ site of significant interest? However, I am assuming this is not the case as the grants are generally handled by English Heritage etc. (as opposed to Government)

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Replying to DKB-Sheffield:
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By paul.benny
21st Aug 2021 08:16

There are some specific provisions in FRS102 for heritage assets. Nothing in the OP to suggest that's what we're dealing with here, though.

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