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Government GrantsIAS 20Government GrantsSyllabus B

ACCA · Question 18 · Government Grants

SECTION B - CASE 1: AeroTech Drones

AeroTech Drones Co manufactures specialized agricultural drones. The year-end is 31 December 20X5.
On 1 January 20X5, AeroTech received a government grant of $300,000 towards the purchase of specialized manufacturing equipment costing $1,500,000. The equipment has a useful life of 5 years. AeroTech's accounting policy is to treat government grants as deferred income.

What amounts will be presented in the Statement of Financial Position at 31 December 20X5 regarding the equipment and the grant?

Answer options:

A.

Equipment: $960,000; Deferred Income: $0

B.

Equipment: $1,200,000; Current Deferred Income: $60,000; Non-Current Deferred Income: $180,000

C.

Equipment: $1,200,000; Non-Current Deferred Income: $240,000

D.

Equipment: $1,500,000; Current Deferred Income: $60,000; Non-Current Deferred Income: $240,000

How to approach this question

1. Calculate equipment carrying amount (Cost - 1 year depreciation). 2. Calculate remaining deferred income (Total grant - 1 year release to P&L). 3. Split the remaining deferred income into current (amount to be released next year) and non-current (the rest).

Full Answer

B.Equipment: $1,200,000; Current Deferred Income: $60,000; Non-Current Deferred Income: $180,000✓ Correct
Equipment carrying amount = $1,500,000 - ($1,500,000 / 5 years) = $1,200,000. The grant of $300,000 is released over 5 years ($60,000 per year). At 31 Dec 20X5, $60,000 has been released, leaving a balance of $240,000. Of this, $60,000 will be released in 20X6 (Current Liability) and the remaining $180,000 is a Non-Current Liability.

Common mistakes

Applying the 'deduction from asset' method instead of the 'deferred income' method, or failing to split the liability into current and non-current.
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