CERTYNEX IFRS ACADEMY

Naval acquires equipment of 4,000,000 and receives an asset grant of 800,000. Case convention: straight-line depreciation over 10 years with no residual value; the entity chooses between two presentations, deferred income released over 10 years, or deduction of the grant from the cost of the asset. What is the difference in net annual effect on profit or loss between the two presentations?

None: the net annual effect on profit or loss is 320,000 under both presentations.

Deduction from cost gives 80,000 more net expense than deferred income.

Deferred income gives 80,000 more net expense than deduction from cost.

Deferred income gives a net effect of 400,000 and deduction from cost a net effect of 320,000.