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Recognise restricted income in year of receipt?

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Having met the 3 components for income recognition, must restricted income be recognised in the year of receipt if no timing conditions are provided?

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By paul.benny
29th Sep 2020 07:20

Mention of restricted funds leads me to think you're a charity but other than that I don't really know what you're asking about. Could you expand on your question.

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By WhichTyler
29th Sep 2020 08:00

Recognise in in the year of entitlement, even if it is received later. Receipt is usually a strong sign of entitlement though

so if you meet the tests, recognise it

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By YourCloudAccountant
29th Sep 2020 08:04

Follow the SORP. Normally all grants are recognised in the year of granting (entitlement) however, if there are future requirements like meeting X target. Then you would have to defer the income.

A requirement such as provide a "report" is almost 100% in your power to achieve, therefore this means you recognise the income when granted rather than defer.

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Replying to YourCloudAccountant:
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By Finance Flower
29th Sep 2020 21:07

Thanks but what bit of the Sorp confirms this?

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Replying to Finance Flower:
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By WhichTyler
30th Sep 2020 08:34

para 5.26-27 are relevant key, but read all of Ch5 (and count the time spent as CPD...)

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Replying to YourCloudAccountant:
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By Finance Flower
02nd Oct 2020 19:06

I’ve go t this now but as a reult of COVID we haven’t been able to spend these funds. Is this sufficient to defer?

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By Paul Crowley
29th Sep 2020 08:48

When entitled the restricted fund exists.
Income recognised with no expenditure.
Restricted fund carried forward, not part of general funds.
No idea how money received for a restricted fund could be deferred.

Is this the first restricted fund?

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Replying to Paul Crowley:
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By Finance Flower
29th Sep 2020 21:05

Thanks for this. I believe there re instance when it’s possible to defer restricted funds if there is a time element included as part of the restriction. It would be good to see the relevant reference in the SORP so that I can confirm why it is inappropriate to defer

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Replying to Finance Flower:
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By Paul Crowley
29th Sep 2020 22:01

SORP says recognise income when entitled.
Cannot ignore it if you have the money.
The SOFA should have columns for restricted, designated and unrestricted

No idea why the word defer appears in this thread at all.

If donor gives the money for charity to spend then recognise is only option.

If it it a free gift for doing something that they are not paying for until the project is complete: then no entitlement until project complete and clearly will NOT EVER be restricted
Restriction is to make sure you spend according to their wishes, not waste their money of your choice of expenditure.

You have not replied to the 'first time' question but your comments make it abundantly clear.

Make sure your independent examiner understands restricted funds. Donor will expect proper recording by the charity.
Any leftover money belongs to the donor, not the charity

The charity commission will have no sympathy for an inept board of trustees.

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By jwgrogan
29th Sep 2020 17:30

If the restricted fund is to cover e.g salary or rent costs wouldn't you recognise it over the period that the salary or rent is paid? If your year end is December, and you receive a grant to cover salary for a year from 1 July wouldn't you defer half of it in the December accounts?

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Replying to jwgrogan:
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By Finance Flower
29th Sep 2020 20:59

Thanks for this. I’m assuming that In this case, since this restriction is time specific, it must be deferred to match the period.

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By Finance Flower
29th Sep 2020 21:08

Thanks everyone. Which bit of the Sorp should I refer too?

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Replying to Finance Flower:
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By Paul Crowley
29th Sep 2020 21:57

Quicker and less stress to ask an accountant who regularly deals with charities that have been previously receiving restricted funds

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Replying to Finance Flower:
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By paulwakefield1
30th Sep 2020 08:26

Have a look at Section 5 of the FRS 102 2019a SORP (if that is what you are reporting under) particularly 5.8 to 5.28. But it needs a proper read; it is very easy to cherry pick the bits one wants to see and misinterpret it.

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Replying to paulwakefield1:
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By Paul Crowley
30th Sep 2020 09:04

Terms and conditions that do not prevent recognition
5.26. When meeting terms or conditions are within the charity’s control and there is sufficient
evidence that they have been or will be met, then the income must be recognised. Terms
or conditions such as the submission of accounts or certification of expenditure are
administrative requirements and would not prevent the recognition of income.
5.27. A donation or grant without conditions should not be deferred even if the resources are
received in advance of the expenditure on the activity funded by them. The timing of the
related expenditure is at the discretion of the charity and the income cannot be deferred
simply because the related expenditure has not been incurred. For example where a donation
or grant is given specifically to provide a fixed asset or a fixed asset is donated (a gift in
kind), the charity is normally entitled to that income when it is receivable. At this point, all of
the income must be recognised in the SoFA and not deferred over the life of the asset.
5.28. Similarly, a condition that allows for the recovery by the donor of any unexpended part of a
grant does not prevent recognition. Instead, a liability to any repayment is recognised when
repayment becomes probable.

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Replying to Paul Crowley:
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By jwgrogan
30th Sep 2020 12:05

Paul Crowley wrote:

Terms and conditions that do not prevent recognition
5.27. A donation or grant without conditions should not be deferred even if the resources are
received in advance of the expenditure on the activity funded by them. The timing of the
related expenditure is at the discretion of the charity and the income cannot be deferred
simply because the related expenditure has not been incurred.

So if a charity with a 31/12 year end has secured a restricted grant to cover 2 years worth of salary and overhead costs @ say £50k per year, and it's received in 2 chunks, on 1/1/20 and 31/12/20, then if that is its only income, the 2020 SOFA should show £100k of income and the 2021 SOFA should show £nil? I know that the restricted funds would show £50k in the balance sheet at 31/12/20, but funders are usually no more able to understand accounts than mortgage lenders and I think it would be a struggle to get them to fund a charity going forward that to their eyes had no income in 2021.

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Replying to jwgrogan:
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By paulwakefield1
30th Sep 2020 12:28

It depends on the specific circumstances. The whole of S5 and especially s5.8 - 5.28 needs to be read. There can be triggers for deferral.

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Replying to jwgrogan:
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By Paul Crowley
01st Oct 2020 21:21

I do not make the rules.
Difficult to justify bending them because the readers do not understand them.

Quite involved with a couple of funded charities with multiple restricted funds. Both had the same recognised leading light that looked to designate all unresticted funds for the same reason that funders expect charities to spend their own funds and merely top up, rather than fund the actions they wanted to happen.

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