UNIT I: ULOa Exercises

Let’s Check

1. Government grant shall be recognized when there is reasonable assurance that

a. The entity will comply with the conditions of the grant.
b. The grant will be received.
c. The entity will comply with the conditions of the grant and the grant will be received.
d. The grant must have been received.
2. Government grant in recognition of specific costs is recognized as income
a. Over the same period as the relevant expense.
b. Immediately.
c. Over a maximum of 5 years using straight line.
d. Over a maximum of 5 years using sum of digits.
3. Government grant related to depreciable asset is usually recognized as income
a. Immediately
b. Over the useful life of the asset using straight line.
c. Over the useful of the asset using sum of years’ digits.
d. Over the useful life of the asset and in proportion to the depreciation of the asset.
4. Government grant related to nondepreciable asset that requires fulfillment of certain conditions
a. Should not be recognized as income
b. Should be recognized as income immediately
c. Should be recognized as income over 40 years
d. Should be recognized as income over the periods which bear the cost of meeting the
conditions
5. A government grant that becomes repayable shall be accounted for as
a. Change in accounting estimate
b. Change in accounting policy
c. Both change in accounting estimate and change in accounting policy
d. Neither change in accounting estimate nor change in accounting policy
6. Repayment of grant related to income shall be
a. Recognized as component of other comprehensive income
b. Charged to retained earnings
c. Expensed immediately
d. Applied first against the deferred income balance and any excess shall be recognized
immediately as an expense
7. Repayment of grant related to an asset shall be recorded by
a. Increasing the carrying amount of the asset if the deduction approach is used
b. Recognizing as expense the cumulative additional depreciation that would have been
recorded to date in the absence of the grant if the deduction approach is used
c. Reducing the deferred income balance to zero if the deferred income approach is used.
d. All of these
8. The amount of benefit in a zero-interest government loan is measured as the difference
between
a. Face amount and present value of loan
b. Face amount and fair value of loan
c. Fair value and present value of loan
d. Fair value and face amount of loan
 9. In the case of a nonmonetary grant, which of the following accounting treatment is prescribed?
a. Record the asset at replacement cost and the grant at a nominal value
b. Record the grant at a value estimated by management
c. Record both the grant and the asset at fair value of the nonmonetary asset
d. Record only the asset at fair value and not recognize the fair value of the grant
10. Which disclosure is not required about government grant?
a. The accounting policy adopted for government grant
b. Unfulfilled condition and other contingency attaching to government assistance
c. The name of the government agency that gave the grant
d. The nature and extent of government grant recognized in the financial statements

Let’s Analyze

1. An entity received a government grant of P2,000,000 related to a factory building that it bought
in January 1, 2018. The entity’s policy is to treat the grant as deferred income. The entity
acquired the building from an industrialist identified by the government. If the entity did not
purchase the building, which was located in the slums of the city, it would have been
repossessed by the government agency. The entity acquired the building for P12,000,000. The
useful life of the building is 10 years with no residual value. On January 1, 2020, the entire
amount of the government grant became repayable by reason of noncompliance with
conditions attached to the grant.

Required: (a) Prepare journal entries for the year 2018, 2019 and 2020 related to the
government grant and acquisition of property. Show your schedule (solution).

2. An entity received a government grant of P600,000 related to depreciable asset acquired on

January 1, 2018 for P6,600,000. This grant was deducted from the cost of the asset with a useful
life of 10 years and residual value of P500,000. On January 1, 2020, the grant became fully
repayable due to noncompliance with conditions.

Required: (a) Prepare journal entries for the year 2018, 2019 and 2020 related to the
government grant and acquisition of property. Show your schedule (solution).