Deferred income

Learning objectives

• Record a grant related to assets as deferred income and its systematic release to profit or loss over the useful life of the asset.L1, L2, L3
• Justify and defend in a professional file (L4) the treatment adopted for the "Deferred income method" concept, distinguishing the IFRS requirement, the case data, the teaching assumption and judgement.L4

Normative references

• IAS 20 §26Deferred income method: the grant is recognised in profit or loss on a systematic basis over the useful life of the asset.

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

8 questions

• Dumont has received {grant_amount} to acquire a depreciable machine. It presents the grant as deferred income. The machine's useful life is {useful_life} years and depreciation is straight-line (case convention). Calculate the annual release of the grant, then the deferred income remaining at the end of year 1.L2
• Ledoux has acquired equipment costing {asset_cost}, partly financed by a grant of {grant_amount} presented as deferred income. Useful life: {useful_life} years, straight-line depreciation with no residual value (case conventions). Record the two year-end entries for the first year: the depreciation charge, then the release of the grant.L3
• A grant of {grant_amount} finances the purchase of a packaging line by Mercier, which presents it as deferred income. The line has a useful life of {useful_life} years, depreciated on a straight-line basis (case convention), and has been in use for {years_elapsed} years. Calculate the annual release of the grant and the deferred income still to be released.L3
• 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
• Under the deferred income method, a grant related to a depreciable asset is taken to profit or loss in full in the year it is received.L1
• Vasseur receives {grant_amount} from a region to finance a production line that it is about to acquire; the acquisition condition is reasonably assured. Case convention: the grant related to an asset is presented as deferred income. Record the entry on receipt.L3
• Chevalier receives a grant of EUR 600,000 for a machine costing EUR 2,400,000, put into service on 1 October of year 1. Useful life: 8 years, straight-line depreciation pro rata temporis (case conventions); the grant is presented as deferred income. Which situation applies at 31 December of year 1?L4