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Hi Chris.
Q1: Assuming we are not told which method to use for the grants. Asset reduction or Deferred income. So by default (according to IFRS) we use Deferred income approach and If we get a grant of 50,000 related to assets depreciating within 10 years and we put this as a Credit to Deferred Income in the SOFP. The Debit of 50,000 on the SOFP would be the Bank/Cash?
Q2: Continuing the example above: 1 year has passed. We have ammortised the Deferred Income by 5000, leaving the 45000 still in the Credit side of SOFP. Now we didn’t meet the govt requirements and now the govt has asked us to repay the grants. The entries would be
A debit to Retained Earnings by 5000.
A debit to Deferred Income by 45000.
And a Credit to Bank/Cash by 50000?am I correct? (I’ve already gone through your lectures and practice tests). Just want to confirm since there was no practice question available for the deferred income method.
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