How are capital grants recognized in government-wide statements?

How are capital grants recognized in government-wide statements?

• A. Grant revenue is recognized when cash is received.
• B. Grant revenue is recognized when earned and available; if the grant funds capital assets, the asset is recorded and depreciation is recognized over its life.
• C. Grant revenue is recognized only as deferred revenue until the asset is disposed.
• D. Grants are treated as transfers and not recognized as revenue.

Answer: (B)

Capital grants in government-wide statements are recognized as revenue when earned, and if the grant funds a capital asset, the asset is capitalized and depreciated over its useful life. In government-wide reporting, the accrual basis applies, so revenue is recognized when the government has earned it, not merely when cash is received. If the grant is intended to finance a capital asset, the asset itself is added to the books, funded by the grant, and depreciation is recorded over the asset’s life. This treatment shows up as grant revenue (capital grants) and an increase in capital assets, followed by depreciation expense. So, grant revenue isn’t recognized only on cash receipt, nor is it deferred until disposal, nor treated simply as a transfer. When a capital grant funds a new asset, both the asset and the associated depreciation are recognized in the government-wide statements.

Capital grants in government-wide statements are recognized as revenue when earned, and if the grant funds a capital asset, the asset is capitalized and depreciated over its useful life.

In government-wide reporting, the accrual basis applies, so revenue is recognized when the government has earned it, not merely when cash is received. If the grant is intended to finance a capital asset, the asset itself is added to the books, funded by the grant, and depreciation is recorded over the asset’s life. This treatment shows up as grant revenue (capital grants) and an increase in capital assets, followed by depreciation expense.

So, grant revenue isn’t recognized only on cash receipt, nor is it deferred until disposal, nor treated simply as a transfer. When a capital grant funds a new asset, both the asset and the associated depreciation are recognized in the government-wide statements.