Question

On July 1, 2019 Alora Inc. acquired a manufacturing plant in Nova Scotia for $1,800,000. The entry to record acquisition of the building has already been recorded.

The plant, employing 50 workers, began operations and is expected to be in operations for 20 years with no residual value. In connection with the purchase, the following government assistance was received:

i) Alora received $360,000 in government assistance. This amount does not need to be repaid as long as the plant operates for at least 10 years and employs an average of 25 people per year. Alora is optimistic about the prospects for the plant.

ii) Alora received a $40,000 subsidy for salary costs for the period from July 1, 2019 to June 31, 2021 as long as it meets the criteria in i) above re: hiring of 25 people.

You are to presume all criteria related to the government assistance have been met.

a) Record the 2019 entries related to receipt of the $360,000 and calculation depreciation expense for the year under each of:

• the cost reduction method, and

• the deferral method

Answer 1

Solution of Problem is given as per below.

In Part 1 of Solution Cost of Reduction menthod have been used where capital assistance received from government to be reduced from cost of asset Purchase and in part 2 Deffered income approach have been used where cost of asset have not been reduced and grant is recognised on proportionate basis.