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It said a credit of $125,000 for amortisation of government grants has been included in the cost of sales
The answer is:
deduct the $125,000 in the adjustment for cash flows from operating act.
why it does not same like depreciation tat v need to add it back in the adjustment ?Because a government grant amortisation is spreading an INCOME whereas depreciation is spreading a COST
Hi sir just to confirm whether I think correctly
The amortisation for the cost of government grant is an expenses
but the amortisation for government grant is an income
Am I right?& for the provision for negligence claim
The question said the unprovided amount of the claim $30000 was charged to operating expenses so it should be an expenses right then I have to adjust for the non cash item by adding $30000
but the answer provided is deduct it so it is considered an income
Could you explain tis to me?
TQ very muchNot sure I understand your first post! The government grant is being credited to the income statement over the life of the related asset. But that credit is a non-cash item and needs to be deducted. Any receipt of money by way of grant will be shown in either Operating Activities or in Investing Activities ( dependent upon the objective of the grant ie is it expense orientated or asset orientated? )
When the full amount of the claim was paid, ( say $80,000 – I don’t have the question in front of me ) only $50,000 was shown as a liability so the double entry was Dr Expenses $30,000, Dr Provision $50,000 and Cr Cash $80,000
Was the pbt figure in the question a loss or a profit. If it were a loss, then I can easily see why a non cash expense should be deducted but, without seeing the whole question I can’t really answer your question any better.
I would need to work it through for myself
Sorry
Hi, i just wanted to ask abt provision site up cleaning of 300k. The unwinding cost of the year is 24000.The finance cost in p/l is 80000 including the unwinding cost. So for the cash from operating activities, should include increase in provision rm324 and finance cost rm80 to get cash generated from operations? And then less again the finance cost of rm80000? The provision of 300k has also been included in ppe. When i open account to determine the cash paid on ppe, should i make adjustment for the provision being capitalised?
Another matter is the short term investment, if there is income from this investment, should we include in the investing activities?If the 80,000 includes the 24,000 unwinding, why would we show “increase in provision rm (?) 324” when the increase itself is only 24,000 and show also the 80,000 which you tell me already INCLUDES the 24,000
The add back must surely be 80,000.
Now, calculate how mush has actually been PAID. Clearly, the 24,000 hasn’t – that’s merely a book adjustment to unroll the discount.
The 300,000 is capitalised at the time the provision is first set up. No further amount is capitalised in respect of that provision – the increase in the provision is accounted for by Cr the Provision Account and Dr Finance Charges. So, when you’re doing a TNCA T Account, the figure brought forward already includes the 300,000 ( unless this is the first year – if it IS the first year, then you need to include the 300,000 as a Dr in the T Account ( but not the unrolled 24,000 ))
With reference to the short term investment and any income generated from it …. where else would you want to include the income from an investment? Surely it must be disclosed as part of Investing Activities
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