Issue number:
Date Issued:
15 Apr 2011
Issued to:
Public Hospitals
To update and to advise of the required accounting treatment of unearned income


This circular replaces Circular 17/2002 issued on 1 July 2002.

In January 2018 this circular was updated to reflect the correct terminology with 'unearned income' replacing the previous term 'income in advance'.

In March 2002, DHS (which becomes Department of Health) sought written clarification from the Victorian Auditor General's Office (VAGO) in regard to the appropriate treatment of unearned income. The advice received unequivocally states that unearned income should be recognised as a liability only when it meets the recognition criteria for a liability. The recognition criteria for this liability being, that at balance date the amount of unearned income received and to be repaid has been determined and that there is a present obligation for repayment and that this obligation has arisen as a result of the hospital not meeting funding conditions for retention of the contribution. The repayment of the present obligation embodies the outflow of economic benefits and the amount at which the repayment will take place can be measured reliably.

VAGO further advised that in their view Weighted Inlier Equivalent Separation (WIES) and other grants are all non-reciprocal in nature at the time of receipt by hospitals, even if output measures are attached to the grant. VAGO came to this opinion at the time due to the definitions of non-reciprocal and reciprocal revenue contained in Australian Accounting Standard AAS15 Revenue and Statement of Accounting Concepts (SAC) 4. The relevant equivalents of these references and requirements are now consolidated in AASB 1004 Contributions.

AASB 1004 Contributions defines a "non reciprocal transfer" as a transfer in which the entity receives assets or services and has liabilities extinguished without directly giving approximately equal value in exchange to the other party or parties to the transfer. It also states that "for a transfer to be reciprocal, it is not sufficient that the transferor receives benefit indirectly as a result of the transfer" (Paragraph 23). Where specific conditions are attached to a contribution (e.g. specific purpose grants) and the contribution has to be repaid if the prescribed conditions are not met, then the contribution should not be recognised as revenue until the conditions are met (i.e. presented on the balance sheet until the conditions are met). However the recognition criteria for liability (income in advance) as mentioned above applies. Generally most donations and grants would not be able to satisfy recognition criteria. Thus grants are non-reciprocal in nature and should be recorded as revenue by the hospital once control of the grants has been obtained (upon receipt).

For queries on the above matters please contact

Lance Wallace 
Executive Director
Finance and Corporate Services