Question
On January 1, 2026 Amberlea Dairy received a government grant of $60,000 in cash toward a new milking system, and on the same day bought the system for $300,000 cash. The system has a 5-year life, no residual value, and is depreciated straight-line. There are no unmet conditions attached to the grant.
Amberlea presents asset-related grants as deferred income, one of the two presentations IAS 20 allows.
Required:
- Journal Entries — the grant received, the purchase, and the December 31, 2026 entries. Use Cash, Deferred Grant Income, Machinery, Depreciation Expense, Accumulated Depreciation - Machinery and Grant Income.
- Net Effect on Profit — the net amount by which the system and the grant reduce 2026 profit.
- Statement Impact — the combined effect of the December 31 entries.
Statements in this challenge
- Journal EntriesJournal Entry
- Net Effect on ProfitNumeric Answer
- Statement ImpactStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
How to approach this
IAS 1 — Presentation of Financial Statements
A composite challenge links several statements built from one set of data, so figures flow between them: profit reaches retained earnings, and the closing balances feed the position statement. Complete them in the order the statements depend on each other rather than the order of the tabs.
Common mistakes
- Preparing each statement independently, so the linking figures disagree.
- Carrying a figure forward before finishing the adjustments that change it.
- Reworking a linked figure in one statement without updating it in the others.
Further readingIAS 1: what goes where in a full set of statements