Interaction with IAS 20: asset grants

Learning objectives

• Analyse the effect of a grant related to an asset on the eligible expenditure, the cost of the asset, the depreciation charge and the financial statements when the asset is financed by a specific borrowing (IAS 20 / IAS 23 integration case).L3
• Justify and defend in a professional file (L4) the treatment adopted for the "Interaction with IAS 20: grants reduce eligible expenditure and change the asset" concept, distinguishing the IFRS requirement, the case data, the teaching assumption and judgement.L4

Normative references

• IAS 23 §18Eligible expenditures: payments of cash, transfers of other assets or the assumption of interest-bearing liabilities, net of any progress payments received and grants received in connection with the asset.

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

3 questions

• Lucas is building a logistics platform. It paid {cash_paid} in cash and assumed interest-bearing liabilities of {interest_bearing_liabilities}; it received a grant related to the asset of {grant_received}. Case convention: a specific borrowing finances exactly the eligible expenditure, at {annual_rate} a year, for {months_financed}. Calculate the eligible expenditure, then the borrowing costs eligible for capitalisation.L3
• 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?L4
• Calypso is constructing a plant financed by a specific borrowing and by an asset grant of 800,000. It may present the grant as deferred income or as a deduction from the cost of the asset (entity's choice, case data). In a few sentences, justify the effect of the grant on the expenditure eligible for capitalising interest, then on the cost of the asset and the financial statements under the presentation adopted.L4