ACCA Applied Skills · Financial Reporting · Government grants
Baro Co receives a $90,000 grant on 1 October 20X5 to compensate for costs of a pollution clean-up programme. The programme runs for 18 months from 1 October 20X5, with costs incurred evenly. Baro's year end is 31 December. What is the deferred income balance at 31 December 20X5?
The deferred income balance is $75,000. The grant is spread over the 18-month programme at $5,000 per month, so three months of 20X5 release $15,000 to profit or loss, leaving $90,000 less $15,000 as a liability at the year end.
- A$75,000Correct
- B$90,000
- C$15,000
- D$85,000
Explanation
Monthly recognition is $90,000/18 = $5,000. For 3 months to 31 December 20X5, $15,000 is recognised in profit or loss. Deferred income is $90,000 - $15,000 = $75,000. $15,000 is the amount released, not the balance remaining.
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