The financial statements should give a true and fair view of the accounts and at the same time give a true and fair view of the financial health of the business. It goes without saying that this assertion could not work without the correct accounting treatment of all accounting transactions, including the accounting for grants, with which accounting entities still have difficulties.
The term 'grant' usually refers to a specific type of funding that an entity receives from a grantor. The use of these funds is linked to the purpose for which they are provided. In most cases, these funds are not repayable unless the entity breaches the conditions set by the grantor.
In most cases, the provision of such grants is subject to the submission of an application and verification of the necessary requirements by an auditor. It must be stressed that, for example, grants provided from the state budget are not a legal entitlement. If a grant is approved after the close of the reporting period, the entity should inform the users of the financial statements of the use of the grant, e.g., by mentioning it in the notes to the financial statements.
The two most common types of grants are operating grants, which cover current expenses, and investment grants, which are provided for the acquisition of assets.
When accounting for operating grants, it is necessary to comply with the so-called accrual principle, which in practice means the temporal and factual matching of expenses and income. Another is the prudence principle, which is based on accounting for a grant whenever there is both a legal title to use the grant and a certainty that the grant will be provided to the entity.
Depending on the type of grant, the accounting procedure, which is set out in Czech Accounting Standard No. 017 - Accounting Relations, also differs:
| Operating grants | |
| Debit | Credit |
Unquestionable legal title to a grant | Sundry receivables 37* | Grant accounting 34* |
Using a grant to settle expenses | Grant accounting 34* | Sundry operating (financial) income |
Grant receipt on an account | Bank account 22* | Sundry receivables 37* |
| Investment grants | |
| Debit | Credit |
Unquestionable legal title to a grant | Sundry receivables 37* | Grant accounting 34* |
Use of a grant to reduce the acquisition cost of assets | Grant accounting 34* | Fixed assets 0** |
Grant receipt on an account | Bank account 22* | Sundry receivables 37* |
The table below shows how the accounting should be done provided that the grant has been used and accounted for in one reporting period. Where future operating costs are covered, the corresponding part of the grant is recognized as 'Deferred income'.
If it is a grant-in-aid that was made for the acquisition of an asset, the grant-in-aid will not be reflected in the entity's profit or loss in one reporting period but will be spread over the period over which the related asset is depreciated. The acquisition cost of assets (or, as the case may be, technical improvement of assets), needs to be reduced by the grant provided and the annual/monthly depreciation charges will be calculated based on the reduced acquisition cost. If the grant has been granted for 100% of the asset or its technical improvement, the asset/technical improvement is recorded in the off-balance sheet.
In the event of a breach of the terms and conditions of the grant by the entity, the entity must repay the grant in whole or in part. A Liability shall then be reported in the accounts at the date on which this obligation is established, in the corresponding amount.
