Government Grants (IAS 20) – Grant Repayable

Hi, grateful for any assistance.

I am able to reconcile the following answers mentally but unsure which is accurate for exam purposes.

Source: ACCA FR Practice Questions – Chapter 5 IAS 20 Question 4

Rode PLC has successfully applied for & received a gov’t grant of $70K & credited the full amount of the grant to the related asset account. The asset cost $150K & had an estimated useful life of 10 years. At the end of the 3rd year, having already prepared the draft F/S for year 3, Rode PLC defaulted on the grant terms & the full $70K is now repayable.

What adjustments should Rode PLC now make as a result of having to repay the grant?

1. Dr. Asset Account 70K (to restore the actual asset cost), Dr. Retained Earnings 21K (extra dep’n that should’ve been paid would’ve reduced profit in the year), Cr. Bank/ Cash A/C (to settle the gov’t for defaulting on the grant = grant amount), Cr. Acc. Dep’n (for extra dep’n that should’ve been paid) – SOLUTION

2. Dr. Deferred Income A/C for the remaining balance $49K, Dr. Expense A/C for the $21K excess (Dep’n) payment above the deferred income balance, Cr. Bank/ Cash A/C $70K for the grant repaid – Maybe incorrect as the related asset account is not identified here and the grant was initially matched to the related asset expenditure.

HELP!

Thank you.