Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p26
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 26/91)
Character Range: 77501–80383

20X6 or failing to spend the grant in full by 30 June 20X7, the breach is the obligating event giving rise to a liability (in this instance, a penalty).  For this reason, Charity B recognises the grant of $2.4 million as income as at 31 May 20X6.  If Charity B breaches the contract, it recognises a liability and equivalent expense for the amount due for repayment when the breach occurs.

    The journal entry for the accounting treatment is:

     31 May 20X6 Debit Credit

     Cash  2,400,000

     Income  2,400,000

    Example 6B – Enforceable agreement, sufficiently specific performance obligations and restrictions on timing of expenditure

    This example contains the following additional facts relating to Charity B:

                    Charity B's charter states its purpose is to provide counselling to victims of violence and emergency accommodation to the homeless; and

                    Charity B has an agreement with the grantor that specifies the grant must be spent providing crisis counselling services for a given number of hours per week for the entire year ending 30 June 20X7.  Charity B expects to fulfil its promise to provide the counselling services.

    Based on the facts and circumstances outlined above, on gaining control of the grant of $2.4 million, Charity B determines that the grant agreement does not give rise to related amounts of the following types:

                    a contribution by owners, as the government does not have an ownership interest in Charity B;

                    a lease liability as defined in AASB 16, as the grant agreement is not a lease and does not contain a lease;

                    a financial liability within the scope of AASB 9, as there is no unconditional obligation to repay the grant and the conditions requiring repayment of the grant are under the control of Charity B; and

                    a provision within the scope of AASB 137, as the agreement provides legal obligations and there are no other sufficiently specific constructive obligations to consider.

    Charity B concludes its agreement with the grantor is a contract with a customer as defined in AASB 15. This is on the basis that:

                    the agreement is enforceable (refer to paragraphs F11–F19 of AASB 15), as the grantor can enforce its rights in the contract to require Charity B to return the funds if Charity B does not fulfil the specific performance obligations under the contract (ie by providing the counselling services for the specified number of hours per week for the entire year); and

                    Charity B's obligation to provide the specific services (identified counselling services for a specific number of hours per week in 20X6/X7 to victims of violence) in return for the consideration from the grantor is sufficiently specific to determine when the obligation is