Hi I set up a community interest company and I received a grant for £15,000 through a funder called Unltd. This funding was given to me as an individual but i am using it in whole for the company. It is a flexible grant to be administered as i see fit, and i can draw down portions as and when I need it, in the first year of accounts i drew down two payments totalling £9500. I have £5500 outstanding which will is being drawn down in the second year of trading. It has been used to cover some items of capital expenditure, pay rent on premises and insurance. How would I show this on a balance sheet and in turn in the profit and loss? Would the remaining £5,500 show up as a debtor or deferred income?
The grant was given to me as an individual, the money comes into my personal account and I have paid for items as they have been required. Of the £9500 drawn down I have spent £5600 on machines and tooling, £2000 on rent, £1200 on training and £700 on insurance.
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Thank you very much for your response it is becoming clearer. As I have dealt with it in this way what should i say in the notes for the account and how should I word it on the profit and loss and the balance sheet. I will not be claiming the money back and it will all remain in the company.
A note to the accounts – consider this/edit for your use.
Accounting for grant
A flexible grant of £15,000 was received by the director in his personal capacity from UnLtd. The director has utilised £9,500 of the grant during the accounting year to cover revenue and capital expenditure of the company.
Revenue based grant has been recognised in the profit and loss account in the same period as the expenditure to which the grant relates.
Capital grant has been recognised in the balance sheet by treating the amount of the grant as deferred income which is credited to the profit and loss account by instalments over the expected useful economic life of the related asset on a basis consistent with the depreciation policy.
Explanation for illustration purposes only and not part of the notes to the accounts.
Offsetting the grant against the cost of the asset is prohibited under the Companies Act because the statutory definitions of “purchase price” and “production costs” do not make any provision for any deduction from that amount in respect of a grant. As a result, incorporated entities must recognise any unamortised grant(s) as a liability within the balance sheet as ‘deferred income’.
The entries in the books must be in accordance with option chosen..:
On initial recognition
DR fixed asset additions
CR cash at bank
DR cash at bank
CR deferred income
DR depreciation charge P&L
CR accumulated depreciation
Grant release over the life of the asset (10 years)
DR deferred income
CR grant income P&L
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