On 1 Jan 2018 Co A acquires equipment for its manufacturing plant and receives a government grant of 400,000 towards its cost. The equipment costs 1,200,000 and has a useful life of five years. Its residual value is nil. It is depreciated on a straight- line basis.

Requirement:

Explain how the grant will be dealt with in the financial statements and show workings and relevant entries in Income Statement and Balance sheet for the year ended 31 Dec 2018 if:

(i) the grant is treated as deferred income (ii) the grant is deducted from the cost of the asset.