ACCA Applied Skills · Financial Reporting · Government grants
Orion bought equipment for $200,000 on 1 April 20X1 (useful life 8 years, straight-line, no residual value) and received a related government grant of $40,000, which it deducts from the asset's carrying amount. What is the equipment's carrying amount at 31 March 20X3?
The carrying amount is $120,000. Deducting the grant gives a net cost of $160,000, depreciated at $20,000 per year over eight years. After two years, $40,000 of depreciation has been charged, leaving $120,000.
- A$120,000Correct
- B$150,000
- C$140,000
- D$160,000
Explanation
Net cost is $200,000 - $40,000 = $160,000. Annual depreciation is $160,000/8 = $20,000. After two years accumulated depreciation is $40,000, giving $120,000. $140,000 results from depreciating the gross cost and not deducting the grant ($200,000 less $50,000 is $150,000, and $140,000 mixes the bases); $160,000 is net cost with no depreciation.
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