ExpertHard2 marksMultiple Choice
ACCA · Question 11 · Government Grants
Section A
EcoPlastics received a $500,000 government grant on 1 January 20X2 to purchase a recycling machine costing $2,000,000 (useful life 10 years). EcoPlastics uses the deferred income method. On 1 January 20X4, EcoPlastics breached the grant conditions and had to repay the full $500,000.
What is the charge to profit or loss in the year ended 31 December 20X4 as a direct result of the repayment?
Section A
EcoPlastics received a $500,000 government grant on 1 January 20X2 to purchase a recycling machine costing $2,000,000 (useful life 10 years). EcoPlastics uses the deferred income method. On 1 January 20X4, EcoPlastics breached the grant conditions and had to repay the full $500,000.
What is the charge to profit or loss in the year ended 31 December 20X4 as a direct result of the repayment?
Answer options:
A.
$0
B.
$100,000
C.
$400,000
D.
$500,000
How to approach this question
Calculate the unamortized deferred income balance at the date of repayment. The repayment is applied against this balance first. Any excess repayment over the deferred income balance is recognized immediately as an expense.
Full Answer
B.$100,000✓ Correct
Under IAS 20, repayment of a grant related to an asset (deferred income method) is recorded by reducing the deferred income balance by the repayment amount. Original grant = $500k. Amortization for 20X2 and 20X3 = $100k ($50k x 2). Deferred income balance at 1 Jan 20X4 = $400k. Repayment = $500k. The excess of $100k ($500k - $400k) is recognized immediately as an expense in profit or loss.
Common mistakes
Charging the full $500,000 repayment to profit or loss.
Practice the full ACCA FR — Financial Reporting Practice Exam 4
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