Question

Which of the following is true regarding the alternative ways to apply the income approach to accounting of resources acquired through government grants?

a. expenses will be higher and net income lower if the grant is recorded as deferred revenue.
b. expenses will be higher and net income lower if the grant is accounted for as an adjustment to the asset.
c. depreciation expense will be higher if the grant is recorded as deferred revenue, but net income will be the same under the two alternatives.
d. depreciation expense will be higher if the grant is recorded as an adjustment to the asset, but net income will be the same under the two alternatives.

Answer 1

Depreciation expense will be higher if the grant is recorded as an adjustment to the asset, but net income will be the same under the two alternatives.

Step-by-step explanation:

In the context of the income approach to accounting for resources acquired through government grants, the following statement is true: depreciation expense will be higher if the grant is recorded as an adjustment to the asset, but net income will be the same under the two alternatives.

When the grant is recorded as deferred revenue, it does not directly impact the depreciation expense. However, if the grant is accounted for as an adjustment to the asset, it will increase the asset's value and consequently increase the depreciation expense.