ACCA FR Chapter 5 IAS20 Questions
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All options in q1 seem to be correct, in absence of any specifications relating to the nature of the grant, as is the case with the question.
Hi Sir, I think question 4 should be :
Debit carrying amount of asset 49.000
Debit depreciation expense : 21.000
Credit liability : 70.000
This would be a change in accounting estimate (IAS 8) and so we do not change past periods just the current one.
Exactly dude, can u just tell me is that the answer
would u please explain question no. 3 ..
Because the grant $70,000 has been credited to the asset account $150,000, depreciation for 3 years has been calculated on that net figure of $80,000
So depreciation for 3 years has been charged against the retained earnings in the aggregate sum of 3 years @ $8,000 = $24,000
If no grant had been received, depreciation for 3 years calculated at 10% on $150,000 would have been 3 * $15,000 = $45,000
But now it seems that the grant is repayable 馃檨
So what would the situation have been if we had never received that grant?
Asset account would show $150,000
Accumulated Depreciation account would show $45,000, and
Retained Earnings would have been reduced by an additional $21,000 (ie $45,000 – $24,000)
To arrive at the position where we should have been where no grant had been received, we need to:
Dr Asset account $70,000
Cr Accumulated Depreciation account $21,000
Dr Retained Earnings $21,000 and
Cr Cash $70,000
Does that make it any clearer?
Very helpful, thanks!
Hi MikeLittle,
According to [IAS 20.32], “If a grant becomes repayable, it should be treated as a change in estimate.” and “Where the original grant related to an asset, the repayment should be treated as increasing the carrying amount of the asset”. If you Dr Asset account $70,000, it means you increase the cost (the historical cost) of the asset?? I think it should be: Debit carrying amount of asset 49.000 and no RE adjustments cuz this is a change in estimate?
Thank you so much and look forward to receiving reply from you!
Good Day Sir
could you please explain the Question no 4 of the test above .
I don’t understand the depreciation and Retained Earnings part.
please explain ASAP….
many thanks
Mehreen