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IAS 20 permits 2 treatments:
1)write off the grant against the cost of the NCA and depreciate the REDUCED COST. … what is a reduced cost? to which cost is the author referring to?
2) Treat the grant as a DEFFERED CREDIT AND TRANSFER A PORTION to revenue each year, so OFFSETTING THE HIGHER DEPRECIATION CHARGE on the original cost.
i dont get the terms in CAPSLOCK…..1) The Reduced cost is the cost of the asset less the grant provided on the that asset e.g the cost of asset is say $60 mn and grant is $12 mn so reduced cost would be $48mn.
2) Set up the grant as deferred income and credit the grant to income over the life of the asset. which means the grant is $12mn so recognise 400,000 ($12mn x 1/30 i.e life of the asset) as credit to SOCI in the current yr and show the balance of $11.60mn ( $12mn – 400000) as a liability in SOCI i mean out of $11.60 – show 400000 as CL and 11.40 mn as NCL.
Hope its clear to you now 🙂
Thanks Rajnib – except your last figure which should read 11.20 mn ( ie 11.60mn – 400k )
OH yes, sorry while typing i by mistake typed 11.40 mn instead of 11.20 mn. Thanks for the correction.
Can someone show me the computation of the repayment of grant… I know the theory but I need the computations to familiar with the aforementioned topic?
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