UK Grant accounting causing confusion - please help

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This is the situation:

Co A. and Co. B are related companies, but are not within the same group. Co A is a private Ltd company and registered for VAT. Co B is a charity and not registered for VAT.

Both companies are part of a government grant scheme under which a new building is to be constructed for £800k + VAT.
Under the scheme, the grant will fund Co A. for half of the cost at 20% (i.e. £400k @ 20% = £80k), and the grant will fund Co B. half of the cost at 100% (£400k) on the understanding that Co A will own the building but 50% of it will be used for training purposes for Co B upon its completion.

Co A is the lead participant in the grant scheme and is therefore the one that has instructed the contractors to do the building work. As a result, all of the contractor invoices are raised in Co A’s name.
The invoices as a result are booked in full in Co A’s ledger and VAT reclaimed in full. This means at the end of the project the building will be a fixed asset in Co A’s balance sheet at £900k.


The invoices are paid by a mixture of bank loans throughout the build. The reclaimable grant amounts are then subsequently reimbursed at the end of each quarter for costs incurred during that quarter.
e.g. if the whole building was built within one month, the full invoice of £800K + VAT would be processed and paid by bank loans. At the end of the quarter, Co A would reclaim their £80k (50% of cost at 20%) and Co B would reclaim their £400k).

I am struggling to understand how I should be recognising the government grant money in the accounts of Co B. Debit Cash, Credit ???? (at the moment I am crediting balance sheet with Grant income).

Please see attached breakdown of debits and credits and advise if I am missing something or if something is wrong?

My concern is that I don’t know how the grant income in Co. B will be released to the P&L? Maybe Co A, as owners of the building, should charge Co B rent? And then the grant released to the P&L in line with the rental income?

Or should Co A be invoicing Co B for their contribution to the building? Therefore meaning the money transfer from Co B to Co A would be an invoice payment rather than an intercompany loan?
In which case, I presume the invoice would be Debit Sales ledger £540k, Cr Fixed Asset £450k, CR VAT £90k??? And then Co B would show some kind of asset in their balance sheet? Perhaps short-term lease hold additions? And the £450k would be amortised over the lease period?
But then this method would mean that Co A only has an asset in their balance sheet for £450k when in fact that building cost £900k..........and also now has a VAT liability of £90k???

Can someone please advise of the correct accounting treatment. If the building was just being funded by a grant for one company this would be simple, but the fact it is being funded via two companies, with only one of whom will eventually own the building is causing me a problem.......

Thanks
 

Fidget

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it's a joint venture, so account for it as such in both companies based on the agreement between them of who is paying for what etc, with a recharge between them where necessary.

In terms of the grant, company B isn't going to have any ownership of the asset once construction is complete, so it can't be amortised in line with depreciation, so that just leaves the other method of taking it to the P&L in the same period it is received.
 
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