Government grants include

a. Government assistance which cannot reasonably have a value placed upon them
b. Transactions with government which cannot be distinguished from the normal trading
transactions of the entity
c. Both a and b
d. Neither a nor b

A government grant is recognized only when there is reasonable assurance that

*The entity will comply with any conditions attached to the grant
**The grant will be received
Both * and **
Neither * nor **

Bren Inc. received a grant of P60 million to compensate it for costs it incurred in planting trees
over a period of five years. Bren Inc. will incur the costs in this manner: Year 1 – P2 million;
Year 2 – P4 million; Year 3 – P6 million; Year 4 – P8 million; Year 5 – P10 million. Based on
the provisions of PAS 20, how much should be recognized in as income from government grant
at the end of year 1?
60 million
4 million
12 million
2 million

The grant received by Bren Inc. is a grant related to

*Assets
**Income
Both * and **
Neither * nor **

Nadine Co. received a P1,800,000 subsidy from the government to purchase manufacturing
equipment on January 2, 2018. The equipment has a cost of P3,000,000 a useful life of six years
and no salvage value. Nadine depreciates the equipment on a straight line basis.
If Nadine chooses to account for the grant as deferred income, the grant income to be recognized
in 2018 is
a. Nil
b. 300,000
c. 500,000
d. 1,800,000

If Nadine chooses to account for the grant as an adjustment to the asset, the carrying amount of
the asset on December 31, 2018 statement of financial position is
1,200,000
1,000,000
2,200,000
2,500,000
Tarhata Company received a government grant of P2,000,000 related to a factory building that it
bought in January 2016. 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 purchased the building for 12,000,000. The useful life of the building is 10 years with
no residual value.
On January 1, 2018, the entire amount of the government grant became repayable by reason of
non-compliance with conditions attached to the grant.
What is the loss to be recognized resulting from the repayment of the grant in 2018?
1,200,000
2,000,000
1,400,000
400,000

On January 1, 2016, Darwin Company purchased a plating machine for P5,400,000. The entity
received a government grant of P400,000 toward this capital cost.
This machine is to be depreciated on a 20% reducing balance basis over 10 years. The estimated
residual value is P200,000.

The accounting policy is to treat the government grant as reduction in the cost of the asset.
What is the accumulated depreciation on December 31, 2017?
1,000,000
1,944,000
1,800,000
2,000,000

What is the carrying amount of the machine on December 31, 2017?

4,000,000
4,040,000
3,456,000
3,200,000

On January 1, 2016, Exuberant Company received a consolidated grant of P12,000,000. Three-

fourths of the grant will be utilized to purchase a college building for students from
underdeveloped countries. The balance of the grant is for subsidizing the tuition costs of those
students for four years from the date of the grant. The building was purchased in January 2016
and is to be depreciated using the straight line method over 10 years. The tuition costs paid in
2016 amounted to P600,000. What amount of grant income should be recognized for 2016?
1,200,000
3,000,000
1,650,000
1,050,000

At the beginning of the current year, an entity received GRANT ONE to give financial assistance
to the entity for a start-up costs already incurred, and GRANT TWO to subsidize the cost of
purchasing computer software over a 5-year period. Which of the following statements
concerning recognition of income from the two government grants is true?
a. Grant One and Grant two should be recognized as income in the current year.
b. Grant one and Grant Two should be amortized as income over 5 years.
c. Grant One should be recognized as income in the current year and Grant two should be
amortized as income over 5 years.
d. Grant one should be amortized as income over 5 years and Grant Two should be
recognized as income for the current year.

Government grant related to nondepreciable asset that requires fulfillment of certain conditions
a. Should 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