On July 1, Year 1, Hanif Haulers Ltd. purchased specialized trucks and loaders to haul goods between Nunavut and northern Ontario during the winter. The trucks and loaders cost $225,000 in total. They are expected to have a useful life of 12 years, after which they will have a residual value of $42,000. Hanif Haulers received a government grant equal to 30% of the cost of the trucks and loaders. The company records government grants as deferred government grants until they can be recognized and depreciates all equipment on a straight-line basis.
Hanif Haulers' accounting policy for recording depreciation is to record depreciation expense in the month of acquisition but not in the month of disposal. The company's fiscal year end is June 30.
Which of the following is the net impact on Hanif Haulers' Year 2 profit or loss as a result of the purchase of the trucks and loaders and the government grant?
B
C
D
Increase of $5,625
Decrease of $13,125
There is no net effect on profit or loss.
Decrease of $9,625