Deduction from the carrying amount

Learning objectives

• Calculate the net cost, the reduced depreciation charge and the carrying amount of an asset from which the grant is deducted.L1, L2, L3
• Justify and defend in a professional file (L4) the treatment adopted for the "Deduction from the carrying amount method" concept, distinguishing the IFRS requirement, the case data, the teaching assumption and judgement.L4

Normative references

• IAS 20 §27Deduction method: the grant reduces the carrying amount of the asset and is recognised in profit or loss over the life of the asset by way of a reduced depreciation expense.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

5 questions

• Cadet acquires equipment costing {asset_cost} and receives a grant of {grant_amount}. Useful life: {useful_life} years, straight-line depreciation with no residual value (case conventions). Calculate the net charge in profit or loss for the year if the grant is presented as deferred income (depreciation on gross cost less release), then the depreciation charge if it is deducted from the carrying amount, and the difference in profit or loss between the two methods.L3
• Giraud acquires a plant for EUR 800,000, depreciable over 10 years (straight-line, no residual value), and receives a grant of EUR 200,000. It hesitates between deferred income and deduction from the carrying amount. Which statement correctly describes the effect of the deferred income method, compared with deduction, on the first year?L4
• An entity deducts an equipment grant from the asset's carrying amount. How does the grant then affect profit or loss?L1
• Hamelin acquires equipment costing {asset_cost} and deducts the grant received of {grant_amount} from its carrying amount. Residual value: {residual_value}; useful life: {useful_life} years, straight-line depreciation (case conventions). Calculate the cost net of the grant, then the annual depreciation charge.L2
• Aubry has acquired a press for EUR 1,000,000. It then receives {grant_amount} of equipment grant, which its accounting policy deducts from the asset's carrying amount. Record the entry on receipt.L3