A company received a government grant of 40% towards the purchase of the cost of a machine costing 100,000 during the year ended 31 March 2014. The plants residual value was 20,000 and has an estimated useful life of four years.

Explain and show how the government grant will be treated in the financial statements if

1. (i) The grant is treated as deferred income.
2. (ii) The grant is deducted from the assets cost

(i) Deferred Income Method Statement of Comprehensive Income2014201520162017 Depreciation expense- Machinery Grant income Statement of Financial Position2014201520162017 Non-Current Asset Cost Less: Accumulated Depreciation Carrying Amount Non-Current Liabilities Deferred income Current Liabilities Deferred income

(ii) Reducing the cost of the asset by the amount of the government grant