Ias 20

The Magician

Hi there,

Hoping someone well versed in IAS 20 Grants can help me, please.

It is actually taken from Osbourne Elearning.

Now, I know that Grants from the government can either be treated as revenue grants to pay wages or capital grants in the purchase, construction or acquisition of long-term assets.

Capital grants can either be credited to a deferred income account or deducted from the cost of the asset. Apparently.


I'm interested in HOW they got to these workings, and what amounts go in the SOCIE and the SOFP, as I cannot find any workings on the Osbourne site and this is really bothering me!


From the following information, indicate the carrying amount of the asset at the end of year 1 under the two accounting treatments.
Information: asset cost £100,000; useful life five years; no residual value; straight-line depreciation; government grant 25 per cent of asset's cost.

a) Accounting treatment: the amount of the grant is treated as a deferred credit.

The answer here was £80,000.

b) Accounting treatment: the assets carrying amount is reduced by the amount of the grant.

The answer here was £60,000.

Thanks very much.

coojee

Accounting treatment a)

Cost 100,000
Depn 5 years straight line 20,000 per annum
Carrying value = 80,000

Accounting treatment b)
Cost = 100,000
Deduct grant = 25,000
Leaves 75,000
Depn 5 years SL = 15,000 per annum
Carrying value = 60,000