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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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
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.
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)
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.