Question

Using the exchange/nonexchange model, we are talking about recognition for free lunches: When should the school district recognize grant revenue? Please see below.

The example involves a public school cafeteria serving lunch. Some students pay full price for their food, but others receive lunch for a reduced price or for free under the federal National School Lunch Program. Let's assume the school cafeteria meets all nutritional requirements to qualify for National School Lunch Program - all it needs to do now is serve the lunches. The grant is expenditure driven - when the school district proves the reduced price and free meals have been provided, the federal government owes it a grant payment. Ignore the part of the program that involves school districts receiving free food products from the USDA to use in the meals.

Answer 1

Government Grants should be recognised if both of the following conditions are satisfied:

(A) Reasonable Assurance that the conditions imposed by the government in respect of such Grant will be complied by Entity;

and

(B) Reasonable Assurance that the grants will be received by entity.

Also, Grant can be in Cash/Kind/Reduction of Liability.

Revenue Grants can be for Past compliance of condition or for conditions yet to be complied.

In Case Revenue Grants is received for Past compliance of condition then it should be credited to P/L A/C immediately.

Further in case of revenue grant  for conditions yet to be complied then it shoud be deffered and then t/f to P/L prospectively in ratio of Compliance condition cost.

Given the facts of the question, if the school district is Reasonably assured that it can proves the reduced price and free meals have been provided by it and Reasonably assured that the grants will be received by entity, then it should recognise the Grant revenue in the ratio of compiance condition cost.