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ACCA Strategic Professional · Strategic Business Reporting (International) · Non-current assets

Amber Co receives a government grant of $600,000 towards the cost of a machine costing $2,000,000 with a 10-year useful life and no residual value. Amber Co presents the grant as deferred income under IAS 20. What is the amount recognised in profit or loss for the first full year, net presentation excluded (depreciation and grant income shown separately)?

Depreciation is $200,000 on the full cost of $2,000,000 over ten years, and grant income of $60,000 is released each year, being $600,000 spread over the asset's useful life. The grant is presented as deferred income, so the asset stays at gross cost.

  1. ADepreciation $200,000 and grant income $60,000Correct
  2. BDepreciation $140,000 and grant income nil
  3. CDepreciation $200,000 and grant income $600,000
  4. DDepreciation $260,000 and grant income $60,000

Explanation

Under the deferred income approach the asset is carried at cost $2,000,000, so depreciation is $200,000. The grant of $600,000 is released over 10 years, giving $60,000 a year. Option B reflects the deduction-from-asset method, which is the alternative presentation, not the one used here.

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