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?

**Section A** GreenEnergy Co received a $200,000 government grant on 1 January 20X3 to purchase a solar array costing $1,000,000 with a 10-year useful life. GreenEnergy accounts for grants as deferred income. On 1 January 20X5, due to a breach of conditions, the entire grant had to be repaid. What is the immediate impact on profit or loss on 1 January 20X5 upon repayment?

**Section B - Case 2: EcoWind (Question 2 of 5)** *Scenario:* EcoWind, a renewable energy firm, began constructing a new wind farm on 1 March 20X5. Construction costs (excluding interest) totaled $3,000,000. To fund this, EcoWind took out a $2,000,000 specific loan at 6% per annum on 1 February 20X5. Construction was completed on 30 November 20X5. EcoWind received a $500,000 government grant on 1 December 20X5 to help fund the wind farm, which has a 20-year useful life. EcoWind uses the deferred income method for grants. On 31 December 20X5, EcoWind tested an older solar plant for impairment. Its carrying amount was $1,500,000. Its Fair Value Less Costs of Disposal was $1,200,000 and its Value in Use was $1,300,000. *Question:* How much grant income should EcoWind recognize in profit or loss for the year ended 31 December 20X5?

**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 B - Case 3: AgriCorp** *Scenario:* AgriCorp owns vineyards and a grape processing plant. On 1 January 20X4, the carrying amount of the grapevines (bearer plants) was $5,000,000. The fair value of the grapes growing on the vines was $500,000. On 31 December 20X4, AgriCorp harvested the grapes. The fair value less costs to sell of the harvested grapes was $800,000. On 1 January 20X4, AgriCorp received a government grant of $1,000,000 to purchase a specialized eco-friendly tractor costing $4,000,000. The tractor has a useful life of 5 years. AgriCorp accounts for grants by deducting them from the carrying amount of the asset. AgriCorp also holds a portfolio of corporate bonds purchased for $2,000,000 on 1 January 20X4. The business model is to hold the bonds to collect contractual cash flows (principal and interest). At 31 December 20X4, the 12-month expected credit loss (ECL) is $50,000, and the lifetime ECL is $200,000. There has been no significant increase in credit risk since initial recognition. *Question:* What is the depreciation charge for the tractor for the year ended 31 December 20X4?