40228 UniUk SORP text.qxd
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Application Note G to FRS 5 ‘Revenue Recognition’ requires that revenue should be recognised only when a ‘right to consideration exists’ and states that such a right will exist only to the extent that performance of the contractual obligation has taken place. Any payments received in advance of such performance should be recognised on the balance sheet as liabilities. The application note also gives guidance on the following specific complex situations that give rise to revenue: (a) (b) (c) (d) (e)
long-term contractual performance; separation and linking of contractual arrangements; bill and hold arrangements; sales with right of return; and presentation of turnover (income) as principal or agent (see paragraph 55 below).
Accounting for grants 52
Revenue-based grants from government and other bodies should be passed through the income and expenditure account when the conditions relating to the grant have been satisfied (see paragraph 50 above).
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Grants or other contributions from government and other bodies should be accounted for on an accruals basis and recognised in the accounts when the conditions for their receipt have been complied with and there is reasonable assurance that the grant or contribution will be received.
Deferred capital grants 54
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Where an institution receives a grant to finance, or partly finance, the purchase, construction or development of an asset, and the asset is capitalised, the grant should be credited to deferred capital grants and an annual transfer made to the income and expenditure account over the useful economic life of the asset at the same rate as the depreciation charge on the asset for which the grant was awarded. Such grants effectively subsidise future activities and just as the revenue (if any) from those activities is recognised in the accounting periods over which the services are provided, so the grant should be released to income over the estimated useful life of the assets whose acquisition has been subsidised by the grant. Furthermore, the condition that normally has to be satisfied for the recipient to comply with the terms of the grant is that the capital item should be used for the purposes for which the grant was given rather than merely being acquired for future use to support that purpose: the best measurement of usage is by apportioning the benefit of the grant over the estimated useful life of the asset and thus releasing it to income over that period. This is achieved by crediting the grant to ‘deferred capital grants’, disclosed on the funds side of the balance sheet separately from endowments and reserves, and released to income over the estimated useful life of the related asset.
Universities UK management guidance