Skip to content

ACCA Applied Skills · Financial Reporting · Government grants

Zeta Co receives a government grant of $60,000 on 1 January 20X5 as compensation for staff training costs it will incur evenly over the next 12 months. Zeta presents grants related to income as a deduction from the related expense. What is the effect on Zeta's profit or loss for the year ended 31 December 20X5?

The grant is matched to the training costs, which are all incurred during 20X5. The full $60,000 is therefore recognised in profit or loss for the year as a deduction from training expense, leaving no deferred income at the year end.

  1. ATraining expense is reduced by $60,000 over the yearCorrect
  2. BOther income of $60,000 is recognised on 1 January 20X5
  3. CA $60,000 credit is taken directly to equity
  4. DA $60,000 deferred income balance remains at the year end

Explanation

Under IAS 20 a grant compensating for costs is recognised in profit or loss in the periods in which the related costs are expensed. The costs fall evenly over 20X5, so the full $60,000 is recognised in the year as a deduction from training expense. Recognising it all on 1 January ignores matching, and no deferred income remains at year end.

Did you get it right without looking?

One question tells you little. A timed set on Government grants shows your real accuracy, how long you take and where you lose marks.

Practise Government grantsFree diagnostic mock

More Government grants questions