Question

Finance question--A company is looking into a project. The intial costs are $11M to purchase assets. The governement is providing assistance by giving the company $6.5M. I would like to confirm whether this assistance should reduce the intial cost of the assets in one shot or the $6.5M should be amortized during the life of the asset by reducing the depriciation cost?

Answer 1

the assistance from the govt should be treated by reducing the cost of assets in the beginning of the project or by reducing over the life of the project.

Answer 2

I think that this assistance should be amortized during the life of the asset by reducing the depriciation cost because it shows that this cost is the initial value of the asset. I said that instead of borrowing money from the bank, the govent give you money to buy assets for business. It is the similar thing but it is different for the pattern. Hope to help you