Cranston LTD. prepares its financial statements according to International Financial Reporting Standards. In October 2018, the company received a $2 million government grant. The grant represents 20% of the total cost of equipment that will be used to improve the roads in the local area. Cranston recorded the grant and the purchase of the equipment as follows:
Cash.................................. 2,000,000
Revenue......................... 2,000,000
Equipment........................ 10,000,000
Cash............................... 10,000,000
Required:
1. Explain the alternative accounting treatments available to Cranston for accounting for this government grant.
2. Prepare any necessary correcting entries under each of the alternatives described in requirement 1.