A company has a below market interest rate loan. The loan has been used to construct a qualifying asset resultantly the effective interest rate is being capitalized as part of the cost of qualifying asset. The deferred grant has also been correctly recognized. However, the amortization of deferred grant is being charged to P&L. I want to ask if this is the correct treatment.
Considering the matching concept shouldn't the amortization of deferred grant be charged against the qualifying asset instead of P&L. Please let me know the correct treatment as per IFRS
Qualifying asset financed through below market interest rate loan
-
- Posts: 2
- Joined: 08 Dec 2023, 12:51
Qualifying asset financed through below market interest rate loan
Last edited by usman112023 on 08 Dec 2023, 13:00, edited 1 time in total.
Re: Qualifying asset financed through below market interest rate loan
You can account for the grant either by deducting the grant from the carrying amount of the qualifying asset or by recognising deferred revenue and take it to P&L at the same time as you amortise the qualifying asset. The idea is that the grant hits P&L at the same time as the qualifying asset.
If your qualifying asset is not yet ready to be used, the grant should not be hitting P&L anyway.
Does this help?
If your qualifying asset is not yet ready to be used, the grant should not be hitting P&L anyway.
Does this help?
-
- Posts: 2
- Joined: 08 Dec 2023, 12:51
Re: Qualifying asset financed through below market interest rate loan
actually, the grant is being amortized every year to P & L whereas the interest on loan is being capitalized. Please tell me if you have specific reference from standard for your treatment
Re: Qualifying asset financed through below market interest rate loan
Something doesn't seem right. If you are amortising the grant to P&L that means that the qualifying asset is already in use (IAS 20 p12). If that is the case, you should have already ceased capitalising borrowing costs (IAS 23 p22).