The recognition of capital income is often a year end adjustment that we see when preparing statutory accounts. Here is a reminder of the rules:
The Charities Statement of Recommended Practice (SORP)
The deferral of income depends on whether or not entitlement to the income is subject to fulfilling performance related conditions. The usual ‘matching’ accounting principal is not permitted by the SORP.
Per section 5.8 of the SORP, income must only be recognised in the accounts of a charity when all of the following criteria are met:
- Entitlement – control over the rights or other access to the economic benefit has passed to the charity.
- Probable – it is more likely than not that the economic benefits associated with the transaction or gift will flow to the charity.
- Measurement – the monetary value or amount of the income can be measured reliably and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.
From the Academies Accounts Direction (AAD) 2022
The AAD includes the following paragraphs on capital grants:
3.4 Grants received for capital purposes include Devolved Formula Capital Grant, Schools Condition Allocations and the Conditions Improvement Fund (CIF).
3.5 The SORP (paragraph 5.27) states that capital grants should not be deferred over the life of the asset. Capital grants should also be recognised as income from donations rather than as funding for charitable activities.
3.6 Capital grants are recognised in full when there is unconditional entitlement, receipt is probable, and its amount can be measured reliably. Unspent amounts of capital grants are reflected in the balance sheet in the restricted fixed asset fund.
3.7 Evidence of entitlement will usually exist when the formal offer of funding is communicated in writing to the academy trust. However, some grants will contain terms or conditions that must be met before the academy trust has entitlement to the resources. The SORP (paragraphs 5.13 - 5.28) provides more detail of the accounting treatment under these circumstances.
3.8 Capital grants must be spent on capital projects in line with the terms and conditions of the grant. DfE may request to see evidence to ensure appropriate spending.
The next step
If you have any questions please contact Kay Flevill or your usual UHY advisor.
