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ACCA Applied Skills · Financial Reporting · Government grants

Under IAS 20 Accounting for Government Grants, which treatment of a government grant related to a depreciable non-current asset is permitted in the statement of financial position?

IAS 20 allows an asset-related grant to be shown either as deferred income released to profit or loss over the asset's useful life, or deducted from the asset's carrying amount. Immediate recognition in profit or loss or in equity is not permitted.

  1. ACredit the whole grant to retained earnings on receipt
  2. BRecognise the whole grant in profit or loss in the year the asset is acquired
  3. CPresent the grant as deferred income, or deduct it from the carrying amount of the assetCorrect
  4. DCredit the grant directly to a revaluation surplus in equity

Explanation

IAS 20 permits two presentations for asset-related grants: set up deferred income and release it to profit or loss over the asset's life, or deduct the grant in arriving at the asset's carrying amount. Taking the whole grant to profit or loss at once breaches the matching principle. Credits to retained earnings or revaluation surplus are not allowed.

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