4. A manufacturing entity receives a grant of $1m towards the purchase of a machine on 1 January 20X3. The grant will be repayable if the entity sells the asset within 4 years, which it does not intend to do. The asset has a useful life of 5 years. What is the deferred income liability balance at 30 June 20X3 for the manufacturing entity? A) $200,000 B) $250,000 C) $300,000 D) $350,000
Question
- A manufacturing entity receives a grant of 200,000 B) 300,000 D) $350,000
Solution 1
The deferred income liability balance is calculated based on the time that has passed since the grant was received.
The grant was received on 1 January 20X3 and the balance is being calculated for 30 June 20X3. This is a period of 6 months.
The total grant is $1m and it is spread over the useful life of the asset, which is 5 years or 60 months.
So, the monthly rate of the grant is 16,666.67.
For 6 months, the total grant used is 100,000.
Therefore, the deferred income liability balance at 30 June 20X3 is the total grant received minus the grant used, which is 100,000 = $900,000.
So, none of the options A, B, C, D is correct. The correct answer should be $900,000.
Solution 2
The deferred income liability balance is calculated based on the time that has passed since the grant was received. The grant was received on 1 January 20X3 and the balance is being calculated on 30 June 20X3, which is a period of 6 months.
The total grant is 1m / 60 months = $16,666.67.
Over a period of 6 months, the entity would have recognized 100,000 as income.
Therefore, the deferred income liability balance at 30 June 20X3 is 100,000 = $900,000.
However, none of the options A, B, C, D match this calculation. It seems there might be a mistake in the question or the provided options.
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