Depreciable assets

Learning objectives

• Calculate the release of a grant related to a depreciable asset in proportion to the depreciation expense.L2, L3

Normative references

• IAS 20 §12Income approach: the grant is recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grant is intended to compensate.
• IAS 20 §17The periods of the related costs are usually readily ascertainable: a grant for specific expenses follows those expenses; a grant related to a depreciable asset is usually recognised in proportion to the depreciation expense on that asset.

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

3 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