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Hi Sir, may I knw what is the meaning of government grant and amortization for government grant? I not really understand a bit confused about it.
A government grant (or a grant from a local authority) is where the government (or local authority) gives you money (or allows you to not pay a debt) in consideration for some action of yours
For example, you may wish to but an asset that costs $500,000 but the government says “If you buy that asset, we shall help you with the cost and pay $300,000 of the debt”
Amortisation of that grant could be in either of 2 ways:
1) by crediting the $300,000 against the cost of the asset thus reducing the carrying value down to $200,000 and you then depreciate the $200,000 or
2) by crediting the $300,000 to a deferred income account. Then you will depreciate the asset that is carried at $500,000 and, simultaneously you will take a portion of the deferred credit to the statement of profit or loss
In this second method, the overall effect on the year’s profits is exactly the same as in the first method
OK?
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