- 8 Marks
Question
(i) Explain how a repayment of a government grant should be accounted for under IAS 20.
(ii) For each method of presenting a government grant, provide the journal entries.
Answer
(i) Repayment of government grant (IAS 20):
A repayable government grant is treated as a change in accounting estimate.
Income-related grants are offset against any unamortised deferred income, with any excess charged to profit or loss.
Asset-related grants increase the carrying amount of the asset or reduce deferred income, with cumulative depreciation recognised immediately in profit or loss.
(ii) Journal entries
Method 1: Deferred income approach
Dr PPE 600,000
Cr Bank 600,000
Dr Bank 240,000
Cr Deferred Income 240,000
Dr Depreciation Expense 24,000
Cr Accumulated Depreciation 24,000
Dr Deferred Income 9,600
Cr Other Income 9,600
Method 2: Deduct from asset cost
Dr PPE 600,000
Cr Bank 600,000
Dr Bank 240,000
Cr PPE 240,000
Dr Depreciation Expense 14,400
Cr Accumulated Depreciation 14,400
- Tags: Deferred Income, Government Grants, IAS 20, PPE
- Level: Level 2
- Topic: International Financial Reporting Standards (IFRS)
- Series: JULY 2025
- Uploader: Samuel Duah