CHAPTER 10 – GOVERNMENT GRANT ANSWER KEY

DEFRAYING SAFETY

Problem 1

At the beginning of current year, Laco Company received a grant of P25,000,000 from the
American government in order to defray safety and environmental costs within the area where
the entity is located.

The safety and environmental costs are expected to be incurred over four years, respectively,
P2,000,000 P4,000,000 P6,000,000 and P8,000,000.

What amount of grant income should be recognized for the current year?

a. 25,000,000
b. 2,000,000
c. 2,500,000
d. 6,250,000

Problem 2

At the beginning of 2019, Domondon Company received a grant of P25,000,000 from the
government in order to defray safety and environmental costs within the area where the entity is
located. The safety and environmental costs are expected to be incurred over three years,
P6,000,000 for 2019 P6,000,000 for 2020 and P8,000,000 for 2021.

What amount of grant income should be recognized for the year 2019?

a. 25,000,000
b. 2,000,000
c. 2,500,000
d. 7,500,000

Problem 3

At the beginning of current year, Tan Company received a grant of P25,000,000 from the
American government in order to defray safety and environmental costs within the area where
the entity is located. The safety and environmental costs are expected to be incurred over four
years, respectively, P2,000,000 P4,000,000 P6,000,000 and P8,000,000.

What amount of grant income should be recognized for the current year and for the second
year?

a. 25,000,000 both
b. 2,000,000 and 2,500,000
c. 2,500,000 and 5,000,000
d. 6,250,000 and 7,250,000
DEPRECIABLE ASSETS

Problem 1

At the beginning of the current year, Gloria Company received a grant of P10,000,000 from the
Australian government for the construction of a laboratory and research facility with an
estimated cost of P15,000,000 and useful life of 5 years.

The laboratory and research facility was completed and ready for the intended use at the end of
the current year.

What amount of grant income should be included in the income statement for the current year?
a. 10,000,000
b. 2,000,000
c. 1,500,000
d. 0

Problem 2

Jackie Chan Company received a government grant of P15,000,000 to install and run a windmill
in an economically backward area. The entity had estimated that such a windmill would cost
P25,000,000 to construct. The secondary condition attached to the grant is that the entity shall
hire labor in the area where the windmill is located.

The construction was completed at the beginning of the current year. The windmill is to be
depreciated using the straight line method over a period of 10 years.

What amount of grant income should be recognized for the current year?
a. 1,500,000
b. 3,000,000
c. 2,500,000
d. 5,000,000

Problem 3
At the beginning of the year 2019, Johannesburg Corporation received a government grant from
the American government amounting to P28,000,000 to construct and run a rehabilitation
center. Other information about the grant are listed below:
Government grant 28,000,000
Useful life 10 years
Cost to build 13,500,000
Estimated attributable cost 2,250,000
Percentage of completion 85%
Rehabilitation capacity 1000-1500

What amount of government grant shall the entity record for the year of 2019?
a. 3,025,000
b. 2,800,000
c. 2,380,000
d. 4,150,000

NON DEPRECIABLE ASSETS

Problem 1

At the beginning of the current year, Timtam Company is granted a large tract of land in the
Cordillera region by the Philippine government. The fair value of the land is P40,000,000. The
entity is required by the grant to construct chemical research facility and employ only personnel
residing in the Cordillera region.

The estimated cost of the facility is P45,000,000 with useful life of 10 years. The chemical
research facility was completed and ready for the intended use at the end of current year.

What amount of grant income should be recognized for the current year?
a. 40,000,000
b. 4,500,000
c. 4,000,000
d. 0

Problem 2

At the beginning of 2019, Macarena 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 cost of those students for four (4) years
from date of grant.
The building was purchased in early January and is to be depreciated using the straight line
method over ten (10) years. The tuition costs paid amounted to P600,000 during the year 2019.

What amount of grant income should be recognized for the current year?
a. 1,200,000
b. 3,000,000
c. 1,650,000
d. 1,200,000

Problem 3

At the beginning of the year 2019, Mary Corporation received a government grant from the
Philippine government amounting to P20,000,000 to construct and run a research and
development facility in Tuguegarao. Other information about the grant are listed below:

Fair value of Government grant 20,000,000

Useful life 10 years
Cost of first trial run 500,000
Estimated attributable cost 2,200,000

What amount of grant income should be recognized for 2019?

a. 2,000,000
b. 2,500,000
c. 2,220,000
d. 0
COMPENSATION

Problem 1

At the beginning of the current year, Mah Tu Logna Company received a grant of P6,000,000
from the British government to compensate for massive losses incurred because of a recent
tsunami.

The grant was made for the purpose of giving immediate financial support to the entity. It will
take the entity two years to reconstruct the assets destroyed by the tsunami.

What amount of grant income should be recognized in the current year?

a. 6,000,000
b. 3,000,000
c. 1,500,000
d. 0

Problem 2

During 2019, Hayuk konha Company received a grant of P16,000,000 as compensation for the
losses incurred because of an earthquake. It will take the entity one year to reconstruct the
assets destroyed but will incur costs of P20,000 per month, for the whole said year.

What amount of grant income should be recognized in the current year?

a. 16,000,000
b. 16,240,000
c. 6,000,000
d. 0

Problem 3

At the beginning of the current year, Dejoklang kayapa Company was given P20,000,000 as
government grant to compensate the damages it incurred during the war in Marawi. The
government estimated the cost to reconstruct and cover damages up for about 20% of the said
grant.

What amount of grant income should be recognized in the current year?

a. 20,000,000
b. 16,000,000
c. 24,000,000
d. 0