ACCA Applied Skills · Financial Reporting · Government grants
On 1 January 20X1 Kestrel received a grant of $60,000 towards a machine costing $300,000, with a 5-year useful life and no residual value, depreciated straight-line. Kestrel presents the grant as deferred income. What is the net charge to profit or loss for the year ended 31 December 20X1 relating to the machine and grant?
The net charge is $48,000. Depreciation on the full cost is $60,000 a year, while the deferred income is released at $12,000 a year, reducing the charge. The grant release is credited to profit or loss, offsetting part of the depreciation.
- A$48,000Correct
- B$60,000
- C$72,000
- D$12,000
Explanation
Depreciation is $300,000/5 = $60,000. Grant release is $60,000/5 = $12,000. Net charge is $60,000 - $12,000 = $48,000. Choosing $60,000 ignores the grant release; $72,000 wrongly adds the release instead of deducting it.
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