PFA 1

Chapter 37 – Government Grant

Ma. Ruby A. Bagsit

QUESTION 37-11 Multiple choice (PAS 20)

 
1. This is defined as assistance by government in the form of transfer of resources to an
entity in return for past or future compliance with certain condition relating to the
operating activities of the entity. 
a. Government grant
b. Government assistance
c. Government donation
d. Government aid 

2. 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.  

3. It is a government grant whose primary condition is that an entity qualifying for it should
purchase, construct or otherwise acquire long-term asset. 
a. Grant related to asset
b. Grant related to income
c. Government gift
d. Government appropriation

4. Government grant in recognition of specific costs is recognized as income 

a. 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.

5. Government related to depreciable asset is usually as income 

a. Immediately.
b. Over the useful life of the asset using straight line.
c. Over the useful life of the asset using sum of years' digit
d. Over the useful life of the asset and in proportion to the depreciation of the
asset.

6. 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.

7. A government grant that becomes receivable as compensation for expenses or losses

already incurred or for the purpose of giving immediate financial support to the entity
with no future related costs should be recognized as income 
a. When received.
b. Of the period in which it becomes receivable.
c. Over a maximum of 5 years using straight line.
d. Over a maximum of 10 years using straight line.

8. 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

9. Repayment of grant related to income shall be 

a. Recognized as component of the 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 ag an expense.

10. 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 are correct about repayment of grant related to asset.
QUESTION 37-12 Multiple choice (PAS 20) 

1. It is an action by a government designed to Provide an economic benefit specific to an

entity and for which the government cannot reasonably place a value. 
a. Government grant
b. Government assistance
c. Government takeover
d. Subvention

2. Government includes all the following. except 

a. Free technical advice
b. Provision of guarantee
c. Government procurement policy that is responsible a portion of the entity's sales
d. Improved irrigation water system for the benefit of an entire local
community.

3. Which is included in government assistance? 

a. The construction of infrastructure in developing areas
b. The Imposition of trading constraints on competitors
c. Improvement to the general transport and communication network
d. None of these can be included

4. A forgivable loan from a government or the benefit of a government loan at NILor below
market interest rate is accounted for as 
a. Government grant
b. Government assistance
c. Both government grant and government assistance
d. Neither government grant nor government assistance

5. The amount of benefit in a zero-interest government loan 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
QUESTION 37-13 Multiple choice (IFRS) 
1. In the cage of' a nonmonetary grant, which of the accounting treatment is prescribed?
a. Record the asset at replacement cost and the grant at 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

2. In the case of grant related to an asset, which of following accounting treatment is

prescribed? 
a. Record the grant at a nominal value in the first year and write it off in the
subsequent year.
b. Either set up the grant as deferred income or deduct it in arriving at the
carrying amount of the asset.
c. Record the grant at fair value in the first year and it to income in the subsequent
year.
d. Take it to the income statement and disclose it as an extraordinary gain.

3. In the case of grant related to income, which of the following accounting treatment is
prescribed? 
a. Credit the grant to equity.
b. Present the grant in the income statement as other income or as a separate
line item or deduct it from the related expense.
c. Credit the grant to retained earnings.
d. Credit the grant to sales.

4. Which disclosure is not required about government grant? 

a. The amounting policy adopted for government grant
b. Unfulfilled condition and other contingency 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
QUESTION 37-14 Multiple choice (IAA) 
1. The deferred grant income is classified as
a. Separate component of shareholders' equity
b. Noncurrent liability
c. Other income
d. Partly current and partly noncurrent liability 

2. If the cost of the asset is recorded net o/ the grant 

a. Equity is overstated.
b. Liability is overstated.
c. Asset is understated.
d. Net income is understated.

3. Which statement is incorrect when a government provides an interest-free loan to an

entity? 
a. No interest expense is recognized.
b. The loan payable is initially reported at the present value.
c. The interest element is amortized over the term of the loan using the effective
interest method.
d. The deferred grant income is amortized over the term of the loan using the
straight-line method.
4. Which statement is true regarding the accounting for government grant related to an
asset? 
a. Depreciation is higher and net income lower if the grant is recorded as deferred
income.
b. Depreciation is higher and net income lower if the grant is accounted for as an
adjustment to the asset.
c. Depreciation is higher if the grant is recorded as deferred income, but net
income is the same under the deferred income approach and deduction from
asset approach.
d. Depreciation is higher if the grant is recorded as an adjustment to the asset.