GOVERNMENT GRANT

Assignment

1. On January 1, 20x1, Roger received land from the government with the condition that a building
should be constructed on it. The fair value of the land was Php 500,000. The construction of the
building was completed on January 1, 20x3 for a total cost of Php 1,000,000. The building has a useful
life of 10 years and a zero residual value. Roger uses the straight-line method. What are the amounts
for depreciation and income from grant recognized in the following dates if Roger uses the gross
method?

Depreciation expense Income from government

grant
1/1/20x1 0 0
1/1/20x2 0 0
12/31/20x2 0 0
12/31/20x3 100,000 50,000

2. A recent typhoon caused Php 40 million in damages to Roger’s properties in 20x1. Accordingly, the
government gave Roger a financial aid of Php 10 million. How much is recognized immediately in
profit or loss for the year? Php 10 million.

3. The Roger company purchased a major new piece of machinery for Php 10 million on January 1, 20x8.
It will depreciate this machinery on a straight line basis over its useful life of 10 years, assuming a
zero residual value. Also on January 1 20x8 the company received a government grant of Php 1 million
to help finance this machinery.

If the net method is used, on December 31, 20x8, how much of the following are presented?
a. Cost – Php 9M
b. Carrying amount – Php 8.1M
c. Depreciation – Php 900,000
d. Deferred income – Php 0

If the gross method is used, on December 31, 20x8, how much of the following are presented?
e. Cost – Php 10M
f. Depreciation – Php 1M
g. Carrying amount – Php 9M
h. Deferred income – Php 900k

4. Roger purchased a jewel polishing machine for Php 360,000 on 1 January 20x7 and received a
government grant of Php 50,000 towards the capital cost. Company policy is to treat the grant as a
reduction in the cost of the asset. The machine was to be depreciated on a straight-line basis over 8
years and was estimated to have a residual value of Php 5,000 at the end of this period. Under PAS
20, what should be the depreciation expense in respect of the machine for the year ended December
31, 20x7? Php 38,125

5. Roger purchased a varnishing machine for Php 150,000 on January 1, 20x7. The company received a
government grant of Php 13,500 in respect of this asset.

Roger was to depreciate the asset over four years on a straight-line basis and to treat the grant as
deferred income.

Under PAS 20, what should be the carrying amounts of the machine and the deferred income (DI)
balance at December 31 20x8?

a. Machine – Php 75,000

b. Deferred income – Php 6,750
 6. On August 1, 20x1, Roger received Php 1,800,000 grant from the government to aid in Roger Co.
clean-up drive in the nearby creek. The cleanup took Roger 6 months to complete – from September
1, 20x1 to March 1, 20x1. The clean-up costs totaled Php 2,700,000 and were incurred evenly.

*The income can be recognized on a straight-line basis because the related costs were incurred
evenly.

a. (1.8M x 4 mos. / 6 mos.*) = 1,200,000

*The income can be recognized on a straight-line basis because the related costs were incurred
evenly.

b. (1.8M x 2/6) = 600,000

c. (2.7M x 4/6) – (1.8M x 4/6) = 600,000

7. On January 1, 2012, an entity received Php 6,000,000 as government grant to compensate for costs
to be incurred in planting 100 trees every year in a reforestation area over a period of 3 years.

On January 1, 2013, the entire amount of the government grant became repayable because the entity
has never planted trees in 2012. How much loss is recognized with the repayment? Php 2,000,000

Cash 6,000,000
Deferred income – GG 6,000,000

Deferred income – GG 2,000,000

Income from GG 2,000,000

Deferred income – GG 4,000,000

Loss on GG 2,000,000
Cash 6,000,000

8. On January 1, 20x2, an entity purchased equipment for Php 5,000,000 and received a government
grant of Php 500,000 with respect to this asset. The equipment is to be depreciated on a straight-line
basis over 5 years. The estimated residual value of the equipment is Php 200,000.

On January 1, 20x3, the whole grant became repayable because the equipment purchased did not
meet specified requirements.

a. Under the gross method, how much loss is reflected? Php 100,000
b. Under the net method, provide the complete entry to effect the repayment.

Equipment 500,000
Depreciation 100,00
A/D 100,000
Cash 500,000

COMPLETE ENTRIES:

Gross Net
Equipment 5,000,000 Equipment 5,000,000
Cash 5,000,000 Cash 5,000,000

Cash 500,000 Cash 500,000

Deferred income – GG 500,000 Equipment 500,000
Depreciation 960,000 Depreciation 860,000
Accumulated Dep’n 960,000 Accumulated Dep’n 860,000

Deferred Income – GG 100,000 No entry

Income from GG 100,000

Deferred Income – GG 400,000 Equipment 500,000

Loss on GG 100,000 Depreciation 100,00
Cash 500,000 A/D 100,000
Cash 500,000

Depreciation 960,000 Depreciation 960,000

Accumulated Dep’n 960,000 Accumulated Dep’n 960,000