Capital Grants

D acquired a plant for 800,000. on the date of the purchase, it received a grant of 30% of its cost. the terms of the grant is that if D retains it for 4 years or more, then no repayment liability will be incurred. if the plant is sold within the first 4 years, the repayment due will be on a sliding scale: 75% repayment if sold within the first year and thhis amount will decrease by 25 each year. useful life of the asset is 10 years.

D has no intention to sell the plant within its first 4 years. its accounting policy for capital grants is to treat them as deferred credits and release them to income over the life of the asset to which they relate.

a) discuss whether the company’s accounting policy for capital grants meets the definition of a liability in the IASB Framework.

my answer:

liability is a present obligation due to past events where the outflow of resources is probable. therefore, since there is no intention of D to sell the plant, there is no probability of any outflow. thus, in this case the accounting policy does not meet the Framework definition.

However, following the prudence principle, we shd book it as a liability and thus framework allows it.

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i cd not write anymore, since i knew that IAS 20 does require us to book such grants as deferred income.

when i read the answer, it threw me off about it NOT being the liability but also said that the IAS 20 makes us book it as a liability.

my question: why is the standard not in line with the framework??