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2002 2003
SOFP
Non current liabilities
deferred income-government grants 160 210Current liabilities
deferred income-government grants 40 50Income statement
Other income- Amortization of government grant 50
Additional Information
government grants were received during the year and relation to the purchase of non current assets. The company’s policy is to recognize these grants as deferred income and amortize it over the estimated useful life of the assets. The company recognizes grants received as an investing activity in cash flow statementHow to treat in cash flow statement?
Open up a ‘Government Grant” T account and put in the brought forward values on the credit side and the carry forward values on the debit side
Now record the amortisation (Dr Government Grants account, Cr statement of profit or loss)
Balance off the account and you’ll find the missing figure
Now you have the full information to enable you to put the necessary figures into the statement of cash flows
In investing activities you have $110 and in operating activities you have the add back of the non-cash amortisation
OK?
thanks I got it but may I know why the amortization is debit on the government grant account?
amortization not should be an expense?It’s an INCOME that is being amortised! So it’s the opposite of the amortisation of an intangible ASSET
OK?
Hi Mike I gt some question which is in the same question paper as above which regards to dividend
2002 2003
current liabilities
proposed dividend 30 40addtional information
the proposed dividends on the company’s ordinary share capital. No Interim dividend were paid.Will it anything enter into cash flow statement?
Well that looks like a payment of cash amounting to $30 during the year
That dividend payment of $30 outflow may be shown in either of 2 places …
1) as an outflow within operating activities or
2) as an outflow within financing activities
As a separate point, the treatment of a dividend in a cash flow question is different than a question about amortisation of government grants
Where you have a question about a different subject – even though it may be from the same exam, or even the same question – please start a new separate thread with an appropriate heading
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