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Derringdo acquired an item of plant of a gross cost of $ 1 0 0 0 , 0 0 0 on 1 October 2 0

Derringdo acquired an item of plant of a gross cost of $1000,000 on 1 October 20X2. The
plant has an estimated life of ten years with a residual value equal to 10% of its gross cost.
Derringdo uses straight-line depreciation on a time apportioned basis. The company received
a government grant of 30% of its cost price at the time of its purchase. The terms of the grant
are that if the company retains the asset for four years or more then no repayment liability
will be incurred. If the plant is sold within four years a repayment on a sliding scale would be
applicable. The repayment is 75% if sold within the first year of purchase and this amount
decreases by 25% per annum. Derringdo has no intention to sell the plant within the first four
years. Derringdos accounting policy for capital-based government grants is to treat them as
deferred credits and release them to income over the life of the asset to which they relate.
Required: Discuss whether the companys policy for the treatment of government grants
meets the definition of a liability in the IASBs conceptual Framework. Show the carrying
value of the asset and grant and charge to SOPL for 4 years.

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