Government Grants

“Sponger entered into an agreement with the government that, in exchange for a grant of $60,000, it will provide “vocational experience” tours around its factory, for 12 young prison inmates per month over a five year period starting on 1 January 20X6. The grant was to be paid on the date Sponger purchased a minibus (useful life three years) to take the inmates to the factory and back. The bus was bought and the grant received on 1 January 20X6.

The grant becomes repayable on a pro rata basis for every monthly visit not fulfilled. During 20X6 five visits did not take place due to the pressure of work and this pattern is expected to be repeated over the next four years.

No repayments have yet been made.

Required:
Explain how each of the grants should be accounted for in the financial statements of Sponger for the year ended 31 December 20X6.”

Why should a non-current liability of $21,000 and a current liability of $7,000 be recorded in the Statement of Financial Position?

Current liabilities (1 × 7 × $1,000) $7,000

Non-current liabilities (3 × 7 × $1,000) $21,000