Which models does FRS 102 provide for accounting for grants?

FRS 102, which is the financial reporting standard applicable in the UK and Republic of Ireland, offers two primary models for accounting for grants: the performance model and the accrual model.

The performance model allows entities to recognize grants as income only when the conditions attached to the grant have been fulfilled. This means that income is not recognized until the entity has completed the activities or met the terms stipulated by the grantor, reflecting a clear alignment of income recognition with the actual performance obligations.

On the other hand, the accrual model enables entities to recognize grants as income at the time they are receivable, as long as there is reasonable assurance that the conditions for the grant will be met. This model is more aligned with the matching principle, allowing income to be recorded when rights to receive that income arise, even if the conditions have not yet been fulfilled.

Therefore, the provision of both models facilitates entities in selecting an accounting approach that best reflects their circumstances and the nature of the grants they receive. This flexibility is why the correct answer highlights both the performance and accrual models as options under FRS 102. The existence of both systems acknowledges the diverse contexts in which grants can be structured and the various conditions that can apply to them.