Final answer:
Government grant related to a depreciable asset is recognized as income over the asset's useful life, proportionately to its depreciation, in accordance with International Accounting Standards.
Step-by-step explanation:
A government grant related to a depreciable asset is usually recognized as income over the useful life of the asset and in proportion to the depreciation of the asset. This approach aligns the recognition of the grant income with the consumption of the economic benefits of the asset over time. Under International Accounting Standards (IAS 20), when a grant related to an asset is received, it can be presented in the financial statements either by setting up the grant as deferred income or by deducting it from the carrying amount of the asset. The result in either case is that the grant is recognized in profit or loss over the useful life of the asset in a pattern reflecting the asset's depreciation.
For example, let's say a company receives a government grant of $10,000 to purchase a machine that has a useful life of 5 years and is being depreciated using the straight-line method. Each year, the company would recognize $2,000 ($10,000/5 years) as income, which is proportional to the depreciation expense for that year.
This treatment ensures that the recognition of the government grant aligns with the expense recognition of the depreciable asset.