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Lee Company received an HK$1,800,000 subsidy from the government to purchase manufacturing equipment on January, 2, 2011.The equipment has a cost of HK$3,000,000, a useful life a six years, and no salvage value.Lee depreciates the equipment on a straight-line basis.
-If Lee chooses to account for the grant as an adjustment to the asset, the amount of depreciation expense recorded in 2011 will be:

Question

Quizplus · Accepted Answer

The equipment's cost is reduced by the subsidy, making it HK$1,200,000 (HK$3,000,000 - HK$1,800,000). Depreciation is HK$1,200,000 / 6 years = HK$200,000 per year.

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