Finance Essay

665 Words Jul 25th, 2012 3 Pages
The wind farm shall be initially recognised and measured at its cost. Cost will comprise: * The purchase price of the farm including any non refundable taxes. * Any costs directly attributable in bringing the farm to the condition necessary for it to be capable of operating in the manner intended by management such as site preparation * Legal fees * Title fees * Survey costs * Borrowing costs that may be capitalised in terms of IAS 23 based on the fact that funding for the farm has been obtained by Wind for Water from the International Green Power Company.
Government grants as defined by IAS 20 are assistance by the government in the form of transfers of resources to an entity in return for past or future
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It is expected that Wind for Water will comply with all the conditions attaching to the grant scheme in order to obtain the subsidization for the cost of the farm land.
There are two methods to account for the grant relating to the land. The first method recognises the grant as deferred income that is recognised in profit or loss on a systematic basis over the useful life of the asset. The other method deducts the grant in calculating the carrying amount of the asset. The grant is recognised in profit or loss over the life of a depreciable asset as a reduced depreciation expense. Essentially both methods achieve the same result and so either method may be appropriate.
Based on the conditions of the government grant scheme, all of these commitments will enforce the group’s compliance with sustainability in South Africa and compliance with various legislation relating to the development of skills in South Africa and this will prove to be beneficial for the company in terms of improving its balanced score card rating and complying with BEE. This is essential to ensure that future lucrative contracts with government are secured.
The subsequent measurement of the farm land shall be in accordance with either the cost model or the revaluation model. In terms of the cost model, the land will carried at cost, with no depreciation being recognised as land is a non-depreciable asset. In terms of the revaluation model, the land shall be

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