ExpertEasy2 marksMultiple Choice
ACCA · Question 22 · Financial Reporting
Section B - Case 2: TidalWave Energy
TidalWave Energy PLC received a government grant of $3,000,000 on 1 January 20X4 to assist with the construction of the tidal lagoon (total capitalized cost $14,000,000). The plant has an estimated useful life of 20 years and is depreciated straight-line. TidalWave's accounting policy is to treat the grant as deferred income.
What amount of grant income should be recognized in the statement of profit or loss for the year ended 31 December 20X4?
Section B - Case 2: TidalWave Energy
TidalWave Energy PLC received a government grant of $3,000,000 on 1 January 20X4 to assist with the construction of the tidal lagoon (total capitalized cost $14,000,000). The plant has an estimated useful life of 20 years and is depreciated straight-line. TidalWave's accounting policy is to treat the grant as deferred income.
What amount of grant income should be recognized in the statement of profit or loss for the year ended 31 December 20X4?
Answer options:
A.
$3,000,000
B.
$150,000
C.
$0
D.
$700,000
How to approach this question
Divide the total grant amount by the useful life of the related asset to find the annual amortization to profit or loss.
Full Answer
B.$150,000✓ Correct
Under IAS 20, grants related to assets must be recognized in profit or loss on a systematic basis over the useful life of the asset.
Annual grant income = $3,000,000 / 20 years = $150,000.
Common mistakes
Recognizing the full grant immediately or confusing it with the depreciation expense.
Practice the full ACCA FR — Financial Reporting Practice Exam 6
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