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ACCA Applied Skills · Financial Reporting · Government grants

Delta received a $90,000 grant on 1 January 20X1 to buy a building costing $450,000 (useful life 30 years, no residual value). The grant is presented as deferred income. The grant is repayable in full if Delta disposes of the building within the first 10 years. At 1 January 20X4 (after three years' release), Delta sells the building and repays the grant. What is the effect of the repayment on profit or loss in 20X4, ignoring any gain or loss on the disposal itself?

The charge is $9,000. After three years of release at $3,000 a year, $81,000 of deferred income remains. The $90,000 repayment is first set against that balance, and the excess of $9,000 is recognised immediately in profit or loss.

  1. AA charge of $90,000
  2. BNo effect, because the repayment is taken to deferred income only
  3. CA charge of $81,000
  4. DA charge of $9,000Correct

Explanation

Annual release is $90,000/30 = $3,000, so after three years deferred income is $81,000. IAS 20 requires repayment to be applied first against unamortised deferred income, with any excess charged immediately to profit or loss. Repayment of $90,000 less $81,000 balance gives $9,000 expense. The $90,000 option ignores the deferred balance.

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