When a grant requires the municipality to spend a minimum amount over two years, how is revenue recognized?

When a grant requires the municipality to spend a minimum amount over two years, how is revenue recognized?

• A. Revenue is recognized when cash is received, regardless of conditions.
• B. Revenue is recognized as measurable and available when conditions are met; the time-based spending requirement is disclosed and recognized as conditions are satisfied and expenditures are incurred.
• C. Revenue is recognized only after the grant is fully spent.
• D. Revenue is recognized when the grant agreement is signed, irrespective of expenditures.

Answer: (B)

When a grant has a time-based spending requirement, revenue is earned only as the conditions are met and expenditures are incurred. The grant’s minimum spend over two years acts as a restriction that must be satisfied through actual spending on allowable activities. Therefore, revenue is recognized to the extent that the grant has become measurable, available, and the spending condition is being or has been satisfied; the time requirement is disclosed and the recognition happens as the expenditures occur. This avoids recognizing all the grant cash upfront and aligns revenue with the period in which the related costs are incurred.

When a grant has a time-based spending requirement, revenue is earned only as the conditions are met and expenditures are incurred. The grant’s minimum spend over two years acts as a restriction that must be satisfied through actual spending on allowable activities. Therefore, revenue is recognized to the extent that the grant has become measurable, available, and the spending condition is being or has been satisfied; the time requirement is disclosed and the recognition happens as the expenditures occur. This avoids recognizing all the grant cash upfront and aligns revenue with the period in which the related costs are incurred.