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Hello Chris,
Could you explain the accounting treatment for repayment of grant related to an asset assuming the netting-off method has been used?
Thanks.
Hi,
I can’t just explain the entire treatment, you need to explain what you do not understand about the treatment specifically. I’d not worry too much as you usually see the deferred income method.
Thanks
Let’s say we have an asset which costs $10,000 and a useful life of 5 yearsand we’ve received a government grant’s related to that asset of $5,000 and the condition is that we should not sell the asset for the next 5 years.
1. Assuming we are using the netting off method, we would record the asset as $5000(10000-5000).
2. Now let’s say after 3 years, we face with some problem and we decide to sell the asset.
– In our books, for the moment, we have the asset at a CV of of $2000(5000- dep of $3,000)3. How we would deal with this repayment of the government grant?
Hi,
If we sell the asset and then have to pay back the grant, assuming the full amount, then we would CR Bank $5,000 DR Profit or loss $5,000. This hit to profit or loss would reduce any profit on disposal that has been made.
I doubt that you would have a scenario as such in the FR exam.
Thanks
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