A company received the following grants in the year to 31st May 2005. 600,000 related to the

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Question:

A company received the following grants in the year to 31st May 2005.

₤600,000 related to the purchase of new machinery that cost ₤3,000,000. The machinery was acquired in the current year and being depreciated straight – line over 8 years with a full year’s charge in the year of acquisition. Under the terms of the grant the company must keep the asset for at least 5 years.

₤100,000 towards training costs for the years to May 2005 and 2006. The grant represents 25% of the total estimated costs. During 2005 ₤150,000 was spent on training. The company’s budgeted training costs for 2006 are ₤290,000. If the training costs are not at least ₤400,000 by the end of 2006 the grant is repayable pro-rata.

The company was set up in 2003 and in the current year a grant of ₤50,000 relating to startup costs of the company was received. No amount had been accrued for this as at 31st May 2004 as there was not reasonable assurance that the grant would be received at that date.

In addition to the above grants received, the company is considering installing new energy efficient boilers that use renewable fuel. The boilers would cost ₤150,000 and currently grants of 15% are available.

Required:

Explain how the above items should be dealt with in the financial statements of the company for the year to 31st May 2005 and prepare any necessary journal entries relating to grants.