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Hi tutor kindly explain the PPE and Depreciation part to me
On 1 January 20X6, Gardenbugs Co received a $30,000 government grant relating to equipment which cost
$90,000 and had a useful life of six years. The grant was netted off against the cost of the equipment. On 1 January
20X7, when the equipment had a carrying amount of $50,000, its use was changed so that it was no longer being
used in accordance with the grant. This meant that the grant needed to be repaid in full but by 31 December 20X7,
this had not yet been done.
Which journal entry is required to reflect the correct accounting treatment of the government grant and the
equipment in the financial statements of Gardenbugs Co for the year ended 31 December 20X7?I believe that we need to arrive at the figures that would have been apparent if we had never received the grant
The asset would have been recorded as $90,000 Cost and $30,000 Accumulated Depreciation leaving us with a book value of $60,000
As it is we have brought forward details: asset at $60,000, Accumulated Depreciation at $10,000 and a net book value of $50,000
and the depreciation entry for this current year still has to be recorded
We are trying to finish the year with an asset at $90,000, Accumulated Depreciation of $30,000 and a carry forward amount of $60,000
So the correcting journals, in my opinion, will be:
Dr Asset $30,000
Cr Liability (government or whoever) $30,000and
Dr Statement of profit or loss $20,000 (that’s a $5,000 correction and $15,000 for this year)
Cr Accumulated Depreciation $20,000OK?
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