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Capital grant to a Charity

What is the current accounting treatment for a capital grant to a charity?

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When I research this on the internet I come up with the following:-

"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."

I can't find copies of Paras 110 and 111 that covers this so I suspect this is not still the current treatment or has just the source of the regualtions moved?  

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By David Ex
10th Nov 2021 13:25

Have you tried a Google search on “charity SORP”?

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Replying to David Ex:
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By akr129
10th Nov 2021 17:08

Yes and I tried to read it. There are 216 pages and items numbered 110 and 111 don’t seem to be about capital grants.
This is a pro bono job for a small unincorporated CASC with capital grants brought forward in what looks like a capital reserve. This is just an accounts preparation job (no formal examination or audit) with a starting point that looks very odd to me. I think the nature of the activities lends itself to charity accounting rather than small company accounts, hence I am looking at how to rectify the opening position.
I was just hoping that someone else might know the answer.

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Replying to akr129:
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By Paul Crowley
10th Nov 2021 21:49

It is not a charity
FRS rules apply

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Replying to Paul Crowley:
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By Tax Dragon
11th Nov 2021 07:44

Paul Crowley wrote:

It is not a charity

So "Capital grant to a Charity" wasn't a great start. But we've seen far worse in here - eg at least we know the CASC is an unincorporated body corporate, sometimes the nature of the beast doesn't emerge till halfway down page 2.

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Replying to Tax Dragon:
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By akr129
11th Nov 2021 09:59

A not for profit members' club (t'over say£100k) is surely entitled to adopt a charity accounting framework for its annual accounts if it thinks that this more fairly represents its activities than the standard presentation for small trading companies.

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Replying to akr129:
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By johnt27
11th Nov 2021 10:44

Nope...

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By Tax Dragon
11th Nov 2021 12:05

akr129 wrote:

A not for profit members' club (t'over say£100k) is surely entitled to adopt a charity accounting framework for its annual accounts if it thinks that this more fairly represents its activities than the standard presentation for small trading companies.

Good answer. But surely it depends what you mean. IANAA, IAIPNAChA, so I have no idea about your "surely". I would guess (my new approach) it can make whatever additional disclosures it wants (if that's what you mean). I would guess CASC status imposes some as it is. But surely it can't use a different framework if doing so changes the way it accounts for things (if you see what I mean).

So... I would guess johnt27 is right. (But see my disclaimers.)

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Replying to Tax Dragon:
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By johnt27
11th Nov 2021 12:40

It's a bit like saying surely a private landlord who takes on DSS tenants should be allowed to use the housing association SORP...

A CASC is not a charity, it has some of the tax advantages of a charity, but none of the legal and accounting requirements. Generally, these are unincorporated members' clubs but can be corporate so normal accounting practice applies. Use FRS 105 or 102 and then disclose whatever you want if you fancy it. The likelihood is the accounts won't go anywhere other than the AGM but if HMRC request a return then you'll want the underlying accounting to be done correctly.

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Replying to johnt27:
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By akr129
11th Nov 2021 14:33

Thank you
Guidance from the ICAEW website entitled WHICH ACCOUNTING STANDARD DO I USE FOR CLUBS, ASSOCIATIONS AND SOCIETIES on this link which-accounting-standard-do-i-use-for-clubs-associations-and-societies.ashx (icaew.com)
includes the line :- “If the entity is not subject to any statutory requirement to prepare accounts that give a true and fair view then the constitution or governing document of the entity may require this.”

I think this covers this members’ club. The entity in question is not subject to a statutory requirement to produce annual accounts hence I don’t see that, should annual accounts be required by the members, any particular template is mandatory to be used in the preparation of its accounts. The constitution requires the members to approve the appointment of someone to confirm that the annual accounts agree with the underlying books and records. The previous accountant has done this and nothing else, merely accepting the accounts which include material sums in the Funds section at the bottom of the balance sheet. These sums are described as Grants and the grant givers are listed. I am told that these were capital grants which were credited directly to capital reserves on receipt in previous years. I am not comfortable with the presentation (I think it could be misleading besides just looking wrong), and intend to suggest that a standard presentation (eg as used by a small charity), would be more suitable. I think these grants should be moved from what the treasurer tells me is a Capital Reserve to Revenue Reserves. I would be more comfortable with this if I could ascertain that this was an acceptable accounting treatment for a small charity. Although not registered as a charity the financial activities seem similar to those of a charity.

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Replying to johnt27:
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By akr129
11th Nov 2021 14:22

Thank you
Guidance from the ICAEW website entitled WHICH ACCOUNTING STANDARD DO I USE FOR CLUBS, ASSOCIATIONS AND SOCIETIES on this link which-accounting-standard-do-i-use-for-clubs-associations-and-societies.ashx (icaew.com)
includes the line :- “If the entity is not subject to any statutory requirement to prepare accounts that give a true and fair view then the constitution or governing document of the entity may require this.”

I think this covers this members’ club. The entity in question is not subject to a statutory requirement to produce annual accounts hence I don’t see that, should annual accounts be required by the members, any particular template is mandatory to be used in the preparation of its accounts. The constitution requires the members to approve the appointment of someone to confirm that the annual accounts agree with the underlying books and records. The previous accountant has done this and nothing else, merely accepting the accounts which include material sums in the Funds section at the bottom of the balance sheet. These sums are described as Grants and the grant givers are listed. I am told that these were capital grants which were credited directly to capital reserves on receipt in previous years. I am not comfortable with the presentation (I think it could be misleading besides just looking wrong), and intend to suggest that a standard presentation (eg as used by a small charity), would be more suitable. I think these grants should be moved from what the treasurer tells me is a Capital Reserve to Revenue Reserves. I would be more comfortable with this if I could ascertain that this was an acceptable accounting treatment for a small, not for profit entity as hereby described.

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By WhichTyler
10th Nov 2021 14:34

CPD alert in quadrant 4! Training need identified!

this might be useful if you are starting to take on charity clients
https://www.cfg.org.uk/FoundationCharityFinanceMar22

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By the_drookit_dug
10th Nov 2021 17:08

Recognise the grant in full in the year of receipt if performance conditions are met - likely to be restricted income as the grant has been given for a restricted purpose (i.e. to purchase the asset).

It's common practice thereafter to continue to hold the grant in a separate fund and release to general funds over the life of the asset to offset depreciation.

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Replying to the_drookit_dug:
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By akr129
10th Nov 2021 17:55

Thanks but are you sure? That is what happens in FRS102 company accounts. Until the 2019 Sorp i think this treatment was specifically not recommended for charities as grants in charity accounts ended up in revenue reserves having been written off there via the SOfA in the period to which they related.
I assume the reference to p 110 & 111 is in the previous SORP. So my question is, if my research so far is correct, was this changed in the 2019 SORP? I couldn’t find any references to capital grants there.

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