- the entity has entitlement to the legacy;
- it is probable that the income will be received; and
- the monetary value or amount of the income can be measured reliably.
Entitlement to the legacy arises when the entity has sufficient evidence that a gift has been left to them and the executor is satisfied that the property in questions will not be required to satisfy claims in the estate.
Receipt is normally probable when:
- there has been grant of probate;
- the executors have established that there are sufficient assets in the estate, after settling any liabilities, to pay the legacy; and
- any conditions attached to the legacy are either within the control of the charity or have been met.
Income should only be recognised when it can be measured or estimated with sufficient reliability.
Where an entity is entitled to a legacy and it is probably that income will be received, there may be uncertainty as to the amount of the payment (its monetary value).
If the amount cannot be measured or estimated with sufficient reliability, then the income should be disclosed as a contingent asset.
What measurement basis is used?
Estimated fair value based on the information available. This will generally be the expected cash amount to be distributed to the entity from the estate.
Where the payment of the income is yet to be received or notified as receivable, but receipt of the legacy is probable, the entity will be required to estimate the value of the income receivable.
Prior to the donor’s death, how is an intention or pledge to donate in the will/bequest of an individual recognised?
An intention or pledge to donate in the will of an individual is not sufficient to recognise income.
RELEVANT SECTION OF ACCOUNTING STANDARDS/GUIDANCE
FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, Paragraphs PBE34.64-PBE34.74 and Appendix B to Section 34 (specifically Paragraphs PBE34B.5-PBE34B.7)
Charities SORP (FRS 102), Paragraphs 5.29-5.37