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- June 10, 2020 at 5:34 am
On 1 July 20X1, Saint received a government grant for $4,000. This grant was provided as a contribution towards the costs of training employees over the next two years. Saint has reduced its administrative expenses by the full $4,000.
May I ask how to account for this government grant regarding the scenario above?
Thank you very much.June 10, 2020 at 5:42 am
Model answer is like that
(W8) Government grant
This is a revenue grant. It should be recognised in profit or loss on a systematic basis. The grant is intended to cover training costs over a two year period and so it should be recognised in profit or loss over two years.
Saint should increase its expenses by $2,000 (1/2 × $4,000) and record the balance as deferred income on the SFP.
Dr Admin expenses/retained earnings (W1) $2,000 Cr Current liabilities $2,000
However, I could not understand this model answer.
My understanding is like that
Dr Cash 4000 Cr Deferred income 4000
Dr Deferred income 2000 Cr Income for gov. grant 2000
Could you please help me out?
thank you.June 10, 2020 at 5:31 pm
Your answer assumes that they haven’t made an error
They need to correct the error – they have incorrectly credited P&L with 4000 instead of 2000
Either way, profit down by 2 and deferred income up by 2
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