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Dear tutor
I don’t understand the autidt risk explained by the answer. it states ” the amount relating to capital expenditure should be deferred on the statement of financial position” then it also said ” the grant should then be recognised in P/L over the periods in which depreciation expense on the assets to which it relates to recognised”, so the double entry would be
Dr bank
Cr goverment grand
for when received the grand
then when deferral
Dr goverment grand
Cr ? on SFP, which item line should I use?when the dereciation happened, there would be
Dr depreciation
Cr ? is it the same as above?for the other part, I assume Dr expenses, Cr cash/bank. is it correct?
as there in no time limit in the question, so the company can recognised whenever the related expenese happens, is it correct?
many thanks
You should be aware that you will find most answers to “accounting” Qs in SBR/P2 – or in this case FR/F7 – there is an example 7 in Chapter 5 that covers this. But as you’ve asked here – here are the entries for a grant related to the purchase of an assets.
Suppose the asset cost 10,000 (Dr Asset/Cr Cash) and the grant is for 6,000 (Dr Cash/Cr “Deferred income”).
Suppose asset has a useful life of 10 years – Dr Depreciation/Cr Accumulated depreciation 1,000 each year for 10 yearsIAS 20 says deferred income is “recognised in profit or loss on a systematic basis over the useful life of the asset” – it doesn’t say where in profit or loss so it could be “other income” or it could be “matched” against the related expense – i.e. depreciation – so:
Dr Deferred income/Cr Depreciation 600 – each year for 10 years.i.e. net cost of the asset to the company was 4,000 and the net expense in profit or loss is 400.
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