The cost of a fixed asset (IAS 16)

Learning objectives

• Analyse the effect of a grant on the cost of an item of property, plant and equipment (IAS 16, para. 28) and on the depreciation charge.L2, L3
• Justify and defend in a professional file (L4) the treatment adopted for the "Interaction with IAS 16: grants and the cost of property, plant and equipment" concept, distinguishing the IFRS requirement, the case data, the teaching assumption and judgement.L4

Normative references

• IAS 20 §24Grants related to assets: presented in the statement of financial position either as deferred income or by deducting the grant in arriving at the carrying amount of the asset.
• 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.

2 questions

• Marchand records an item of property, plant and equipment at {asset_cost} and deducts the grant received of {grant_amount} from its cost. 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
• Perrot recorded an item of property, plant and equipment at {asset_cost} and deducted a grant of {grant_amount} from its cost. Useful life: {useful_life} years, straight-line depreciation with no residual value (case conventions). Record the depreciation entry for the first year.L3