Part of new asset sponsored by a customer

Question

Hi,

My company has entered into an arrangement with one of our customer wherein the customer will reimburse 50% of the cost of a new asset needed to enhance the quality of the products supplied to him. The amount reimbursed by the customers shall be non-refundable and the company doesn't have any legal agreement for any fixed quantity to supply.

The cost of asset is $ 50,000/- I am of the view that this should be treated as a grant under IAS 20, and we should record asset at 25,000 (after deducting the amount received from the customer).

Your views are welcomed.

Thanks.
Musawar

Answer 1

Yes apparently is correct treatment but I'll be surprised if an owner of the asset has no responsibility towards the money received.

*****://***.financeledgers.***

Comments

The cost reimbursed by the customer would be revenue as per IFRS 15 and entire cost would form part of PPE. Refer ifric 18