What is the preferred accounting treatment of government grants relating to assets?

Question

Quizplus · Accepted Answer

Government grants related to assets should be recognized in the financial statements by either deducting the grant from the related asset, or by recognizing it as deferred income (liability) and amortizing it over the life of the asset. The purpose of such treatment is to match the grant with the related cost over the useful life of the asset. This treatment helps in recognizing the true economic cost of the asset to the business, and it also ensures that the revenue and expenses are recognized in the same accounting period to reflect the true performance of the business. Options A and C are incorrect because recording the grant directly in equity in the first year would overstate the equity and not reflect the matching principle, while recognizing the grant in totality in the first year would not reflect the true cost of the asset. Option D is incorrect as it does not provide any information or guidance on the preferred accounting treatment of government grants relating to assets.

What Is the Preferred Accounting Treatment of Government Grants Relating