GOVERNMENT GRANTS

Entity Z received the following grants on January 7, 2019:

1. P1,000,000 cash conditioned on the acquisition of equipment.

2. Land with fair value of P800,000 conditioned on the construction of a building on the land.
3. P600,000 cash as aid on a planned environmental project – a clean up drive in coastal areas within the
community.
4. P200,000 cash as aid on losses incurred from a recent typhoon.

The following transactions occurred in 2019 after the receipt of the grants:

a. Equipment was acquired for P1,200,000 on March 4, 2019. The equipment was assessed to have a 5-year useful
life and a 10% residual value. Entity Z uses the straight-line method of depreciation.
b. Construction of a building on the land received from the government was started. Total construction costs
incurred amounted to P2,000,000. The building was finished on August 10, 2019 and is estimated to have a
useful life of 30 years and a residual value of 300,000.
c. The clean up drive was started in 2019. Total costs incurred in 2019 amounted to P200,000. Estimated costs to
be incurred in the future is P520,000.

In 2020, clean-up costs were incurred amounting to 240,000. Estimated costs to be incurred in the future is P230,000.

On January 13, 2021, the government demanded repayment of the P600,000 cash given as grant. The entity repaid the
grant on the same date.

On August 5, 2021, the government demanded repayment of the P1,000,000 given as cash grant due to compliance
issues. The entity made the repayment on the same date.

Required:

1. Prepare the journal entries in 2019, 2020, and 2021 under:

a. Gross presentation.
b. Net presentation.
2. Compute the amount of government grant recognized as income in:
a. 2019.
b. 2020.
c. 2021.
3. What is the carrying amount of the equipment on December 31, 2021?
4. What is the carrying amount of the building as of December 31, 2021?
5. What is the deferred income on government grant as of December 31, 2021?