PRACTICAL ACCOUNTING 1 oo oe cel Uberite/C, Lepenitia clure Monee ay Srants are assistance provided by government by transfor of sources (either monetary or non- emily. They exclude rar fF Past or future compliance with conditions relating to the operating activities of the Traction etch nat (OF ot government assistance which cannot reasonably have a value placed upon them ond spre th government which cannot be distinguished trom the normal Wading transactions of the Recognition of Government ts: Government grants ure Provided in retum for past or future compliance with certain conditions. ‘Thus grants should ot be recognized until there is reasonable assurance that both, 2) The entity will comply withthe conditions attaching to the grant; and 1) The grant(s) will be received i Period of Recognition: Government grants should be recognized as income over the periods necessary to match them withthe related costs, bch they are intended to compensate, ona systematic and rational basis, They should not be credited directly to shareholders’ interests, Additional Principles Laid Down for Recognition of Grants: 2) Grants in recognition of specific costs are recognized as income over the same period xs the relevant expense. b) Grants related to depreciable assets ate usually recognized as income over the periods and in the proportions in which depreciation on those assets is charged. ©) Grants related to non-depreciable assets may also require the fulfillment of certain obligations and would then be recognized as income over periods. which bear the cost of meeting the obligations. As an example, a grant of land may be conditional upon the erection of building on the site and it may be appropriate to recognize it as income over the life of the building. 4) Grants are sometimes received as part of a package of financial oF fiseal aids to which a number of conditions are attached. In such cases, care is needed in idemifying the conditions giving rise to costs and expenses, which determine the periods over which the grant will be earned. It may be appropriate to allocat. part of a grant on ‘one basis and part on another. Measurement of Government Grants: Government Grants are measured at the fair value of grants received or receivable, Presentation of Government Grants: 8) For grams related to assets ~ should be presented in the balance sheet either by setting up the grant as deferred income of by deducting the grant in arriving at the carrying amount of the asset b) For grants related 10 Income ~ are sometimes presented as a credit in the income statement, either separately ‘or under a general heading such as “Other Income”, allenatively, they are deducted in reporting the related expense Repayment of Government Grants: ‘X government grant that becomes repayable should be accounted for as a revision to an accounting estimate. Repayment of a grant related to income should be applied first against any unamortized deferred credit setup in respect of the grant. To the extent that the repayment exeveds any such deferred credit, or where no deferred credit exists, the repayment should be recognized immediately as an expense. Increasing the carrying amount of the asset or reducing the deferred income balance by the amount repayable should record repayment of grant related to an asset. The cumulative additional depreciation that would have is i aR ee rm ee govrnent gn sed one perk Rescue No provision that grants may be deducted from the | Grants related to jc wn of the related asset. 2s seas oonPRACTICAL ACCOUNTING 1 _C Uberita/C. Espenilla AGRICULTURE - Lecture Definition of terms: Biological uscets living plants and animals * Axricultural produce ~ the harvested product of the entity’s biological assets. Biological transformation ~ relates tothe processes of growth, degeneration and production that can cause changes of quantitative or qualitative nature in biological asset. a, asset changes theough ¥ Growth (increase in quantity or improvement in quality of an animal or plant) ¥ Degeneration (a decrease in the quantity or deterioration in quality of an animal or plant) oF ¥-_Procreation (creation of additional living animals or plants, b. Production of agricultural produce such as late. tea leaf, woo}, and Agricultural activity - is the management by an entity of the biological transformation of biologi sale, into agricultural produce, oF int cal assets, such as the following: assets for &. Raising livestock ng orchards and plantations b. Forestry Sf Floriculture ¢. Annuai of perennial cropping ‘2, Aquaculture (including fish farming) 4. Cultivating A group of biological assets - is an aggregation of similar living animals or plants Harvest is the detachment of produce from a biological asset or the cessation of a biological asset's life processes, -xamples of biological assets, agricultural produce, and products that are the result of processing after harvest: an Raies Guawike smeoF ; Biglogical Assets _{ Agricultural Produce _| processing after harvest Sheep [Trees in plantation Plants + ara | | usages, — | Tea, cured Recognition ‘An entity shall recognize a biological asset or agricultural produce when and only when: fa, The entity controls the asset as a result of past events bb. Itis probable that future economic benefits associated with the asset will flow to the entity, and cc. The fair value or cost of the asset can be measured rcliably, Measurement Biological asset - shall be measured on initial recognition and at each balance sheet date at its Fair Value less estimated point of sale costs. Ifthe fair value eannot be measured reliably. it shall be measured at cost less any accumulated depreciation and any impairment losses, Once the fair value of the biological asset becomes reliably measurable, the entity shall measure at its fair valuc less estimated point of sale costs, Agricultural produce harvested from entity's biological assets - shall be measured at its fair value less ‘estimated point of sale costs at the point of harvest Point-of-sale costs include commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges, and transfer taxes and duties, Point-of-sale costs exclude transport and other costs necessary to et the asset to a market. ‘The determination of fair value for a biological asset or agricultural produce may be facilitated by grouping biological assets or agricultural produce according to significant attributes: for example, by age or quality. An entity selects the attributes corresponding to the attributes used in the market as a basis for pricingReSA / PRACTICAL ACCOUNTING 1.____ 5. Innbility to mensure fair val 6 Umities often enter into contracts to sell their biological assets oF agricultural produce al a future date. Contract Hives are not necossurily relevant in determining fai value, because fair value refleets the current market in hich « withing buyer and seller would enter into a transaction. As a result, the fair Value of a biological asset 4 sriculivenl predivew is nor achusted because of the existence of @ contract. In some cases, a contract for the sale ofa biological asset or auricultural produce may be an onerous contract, as defined in PAS 37. Ian active market exists for a biological asset or agricultural produce, the quoted price in that market is the Aapprprinted basis for determining the fair value of that asset... If an entity has access to different active ets, the entity uses the most relevant one. For example, if an entity has access to two active markets, it sseuld use the price existing in the market expected to be used. Man active market docs no exist, an entity uses one or more of the following when available, in determining thir vats 1) The mest recent market (ransietion price, provided that there has not been a significant change in economic ircurnstances between the date ofthat transaction and the balance sheet date; 1b) Market prices for similar assets with adjustment to reflect differences ©) ‘Sector benchmarks such as the value of an orchard expressed per export tray, bushel or hectare, and the value Of cattle expressed per kilogram of meat reliably: There 1 a presumption thal fair value can be measured reliably for a biological asset. However, that presmmption can be rebutted only on initial recognition for a biological asset for which merket-determnined ppeies oF values are not available and for which alternative estimates of fair value are determined to be clearly tunrehable. tn such a case, that biological asset shall be measured at its cost less any accumulated depreciation and any smpairment losses, Once the fair value of such biological asset becomes reliably measurable, an entity shall mensure it at fair value less estimated point-of-sale costs. Once a non-current biological asset meets the teriteria to be classified as held for sale (or is inchuded in a disposal group that is classified as held for sale) in accordance with PERS 5 Non-current assets held for sale and discontinued operation, itis presumed that fair value can be measure reliably. Gniny and losses ‘A jain oF loss arising on initial recognition of a biological asset at fair value less estimated point of sale costs and {rom a change in fair value less estimated point of sale costs ofa biological asset shail be included in profit (of loss for the jetiod in which it arises. (PAS 41, Par, 26) ‘A oss may arise on initial recognition of a biological asset, because estimated point-of-sale costs are deducted in determininy fair value less estimated point-of-sale costs ofa biological asset. A gain may arise on initial recognition of a biological asset, such as when a calf is born, .(PAS 41, Par. 27) A gain of loss arising on initial recognition of agricultural produce at fair value less estimated point of sale Conts shall be included in profit or loss forthe period in which itarises. . (PAS 41, Par. 28) 1 recognition of epricultural produce as a result of harvesting, . (PAS 41, Par ‘A gain or loss may arise on init 2) bint of sale cost include the following. commission to brokers and dealers b, levies by regulatory agencies and commodity exchanges transfer taxes and duties Differences between IFRS for SMEs and FULL IFRS: TERS for SMEs ‘Anniv est ad efor tet included forthe ‘etermivation of far vals of biological wssety ‘No specie sitement at fair value changes on the” Fair value change on the ia vecogalon| intial recognivon of boteglelases mus be | biological assets mnt be eecognned profit fs recapized in profit or loss Fewer disclosures related to ~ Full PRS clowure requirementsGovernment Grant & Agriculture vw licence acai 4 transferable nine-year taxi license by way of government grant when the fair value of The license is given free. on fata performance condition Seca ¥en fe of charge to teeny on the bans of Bugs perfomance and thre te no AL Question 1: How should Bugs account for the government grant? B 8. Debit Intangible asset for P180,000 and credit Other Income for P180,000 b. Debit Intangible asset for P180,000 and credit Deferred Income for P180,000 and amortize over 9 years © Debit Invangible asset for P180,000 and credit Retained earnings for P180,000 4. Leebit Incangsble asset for P180,000 and credit Revaluation surplus for P180,000 ‘Question 2: Assuming, that Bugs is required to operate at least 10 taxis in the deprived neighborhood of the capital city Guring that wune-year period and failure to do so will result inthe license being revoked immediately, how should Bugs ‘account for the government grant? ‘Debit sntangible asset for P180,000 and credit Other Income for P180,000 eit intangible asset for P180,000 and credit Deferred income for P1 80,000 and amortize over 9 years. Jedi batangable aset for P180,000 and credit Retamned earnings for P180,000 Dent intangable asset for P180,000 and credit Revaluation surplus for P180,000 pege Jam Company is an ultimate holding company of « diverse group of entities, with a reporting date of December 31, On January 1, 2011, Fam Company decided to build « nursery school for its employees children. Government approved & cash grant of P1.00,000 provided the building is completed by March 31, 2012, and is used as nursery school for at least 10 ‘years pro-rata portion is refundable ifthe building is not used as a nursery school for ten years. Jam Company received ‘the cash grant on November 1, 2011 Tt completed the school on Ienuary 31, 2012 at a total cost of P2,000,000 end immediaicly started to use the building as a nursery. P1,600,000 of the amount was incurred on December 31, 2011. What ‘amount of deferred income should Jam Company recognized in its December 31, 2012 statement of financial position? a. none e. P 908,333 b. P9W,000 4. PI,000,000 \ ae ‘On Janvary 2, 2010,°NU [Company received a grant related to a factory building. The total amount of the grant wes 18,000,160, Kelly Company acquired the building from an industrialist identified by the govemment If MJ Compery lid not purchaye the factory building, which was located in the slums of the city, it would have been repossessed by a government agency. MJ Company purchase the building for P54,000,000. ‘The useful life of the building is not considered to be more than Gree years, mainly due to the fact thatthe previous owner did not properly maintain it. Assuming the grant is treated as a reduction ofthe gross carrying amount of the asset, what isthe carrying value of buildin: in the December 31, 2010 statement of financial postion? 8. P8,000,000 «. P36,000,000 , F24,000,000 4. P54,000,000 On December 31, 2011, Marian Co. has completed the construction of 2 buildings at a total cost of P50,000,000, Both’ buildings hs an estimated useful life of 5O years and are accounted as investment property. “Ort January’l, 2012, Muartuh.°” Co. reweived P10,000,000 grant from the government in relation tothe buildings. The grant is intended to compensete the entity forthe lower rate it will receive when the property islet out as social housing at below market rate rent. ‘The oonsiact of lease with a erm of 20 years was completed on Jan. 2, 2012. If the entity uses the cost mode! for their investment property, what amount of realized grant should Marian Co, recognize on December 31, 2012? none ‘¢. P. $00,000 b. P200,000 d. P1,000,000 Fortitude Company sold some of their biological assets to Graham for P200,000 on July 1, 2012. ‘The sale was made at Foruitude’s farm. However, ifthe biological assets are being sold at an auction they could have been sold at a higher price but the company has to incur transportation costs Of PD P6,000 comsnission in relation to the sale. Graham Company asset to their own farm, ‘ ‘ortitude company paid incurred P3,000 as transport cost in bringing the Qvbstion.: At what amount should Graham Company recognize the assets initially? ear aa vaieel tee a. £192,000 «. F196,000 pe rnd 194,000 4. F200,000 be oe Re ee D_Question2: What amount of loss should the Graham company recognize on initial recognition related tothe asset? a. none © P6,000 wb. P3,000 4. P9,000 Page 1 of?ReS4 / PRACTICAL ACCOUNTING |___ Government Grants B 6 Fortune Company purchased Diary caitle at an auction for PV00_000 on July 1. 2012. Cast of transporting the cattle back fo the company’s farm was P3.000 and the company would have to incur cost sinitar (eansportatvon + cost af as f0 sell the cattle mn the auction, in addition an auctioneers fee of 2% of sales price. On December E2012, afler taking into account and location, the fair value of the biological assets fad increased t0 500,000 (at is dhe market price including the avctionoer's fee of P 10,000 and transportation cost of PS (HO) ‘What mount of net gain oF loss should the company disclosed in the statement of comprehensive income rckated ‘to the biological assets? 300,090 X16 - BIO rs a. PIW.000, ©. P1%,000 SY6,000 — lopsp -S pre nD B PI9s8.000- d. P200,000 rove, in FV [94 00. D1 “The fatteningvomaton potansio ei asset and agricultural produced of Vista Company, The Vista Company determines that there is no change in fair value of the vines between March 31. 2012 and June 30.2012, What total an fant value ofthe company's vineyard was P25.00,000 As of June 30. 2012 Vista Company determines the following ms | Fair value of the grapes harvested at March 31, 2012 PS00.000 Sy 9,” Estimated point-of-sale costs of the grapes. woo 2 47.7" Estimated point-of-sale costs of the vines 200.00 3g, Fate value ofthe vines as of March 31, 2012, prior to harvest 1.000.000, © | | ant of gain should Vista Company report in its June 30, 2012 as a result of the change An the fair value of the biological asset and agricultural produced? ‘4 ad art ann Sere-men) sins b._PI.000,000 AE P5.700,000 Bh (b1m0 S90 000) 356m duane | Bs orewgn company tm business of dee ining. A id of one Minded dcr eld douhout he Tre year of 2012. ‘The only change during the year 1s the increase in their physical atinbutes duc to agerng from ‘two to three years, The relevant data are as follows: Fair value of a 2-year old decr at 1 January 2012 3.000, Fair valuc of a2-sear old doer at 31 December 2012 3.300 Fare value of a 3-sear old door at December 31,2012 4800 How much is the increase in the fair value of the biological assct duc to physical change? a P 30100 €. PIB#.000 ‘ Bi. P150.00 (fa -3970) K po 4. 480,000 0} Mismet Compan commences eutsation of oi palm erop on Jamar 1. 2012, Costs (paving wueras, 4 Ce te costes 91. HINZ. GH/RIE Vika OF Ib Lael Wil» enue Gad Gp Oar valved P24.000,000, The fair value of an cquivalent raw agncultural land was valued at P1,000,000, What is the vets of poh ora potatonopor for h yc ended Deemer 1.2012? be © Pac .0 J P20. 000 POO SD © Acqorery cporing compan wi Deer 3 eared nas css in respect of sown & wh ld (die Land has a cost of P4,000),00) for the quarter {0 June 30. 2012 of PI_800.008), Management expects 10 harvest the wheat at the end of November 2012 Due to lack of an active market for partly-zrown wheat and very few sales of parly-grown fields, there is no market-tased fair value avaible. Consequently. for the Purpose of preparing the financial statements, te fair value for the wheat (esctuding the kand) should be based ‘on the present value of the expected net cash flows. The relevam discount rate is 11%. Manageme projections as of June 30, 2012 of future cash Hows are as follows. To 3 montis to + months to Period 2012 Dec, 2012 ‘ash inflows mone 8,000,000. Cash outflows 900,000 2,000,000 ‘At what amount should the wheat field should be valued on June 30, 20127 2. PI683,000 © P5.683.100 HK P4.807,200 AF P8.807,200 917 Page 2 9f 2