GOVERNMENT GRANT AND IMPAIRMENT

1. These are assistance by the government in the form of transfers of resources to an entity in return for
part or future compliance with certain conditions relating to the operating activities of an entity.
A. Government grant
B. Government assistance
C. Government aid
D. Government appropriation

2. Which statement is incorrect regarding government grants in accordance with PAS 20?
A. Government grants are assistance by government in the form of transfers of resources to an
entity in return for past or future compliance with certain conditions relating to the operating
activities of the entity.
B. All government grants are government assistance.
C. All government assistance are government grants.
D. All the statements are correct.

3. 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.

4. A government grant is recognized only when there is reasonable assurance that:

A. The entity will comply with any conditions attached to the grant.
B. The grant will be received.
C. Both a and b.
D. Neither a nor b.

Numbers 5-6
On January 2, 2021, Brand Company received a grant of P60,000,000 to compensate it for costs it
incurred in planting trees over a period of five years. Brand Company will incur such cost in this manner:
Year Cost
2021 2,000,000
2022 4,000,000
2023 6,000,000
2024 8,000,000
2025 10,000,000
Actual costs incurred in planting the threes showed P2,000,000 and P4,000,000 in years 2021 and 2022,
respectively. However, in 2023 and up to year 2024, the company has stopped planting trees.
Due to the non-fulfillment of its obligation, the government is demanding an immediate repayment of the
grant in the amount of P50,000,000 which is considered reasonable.
5. What is the grant income for the year 2021?
A. 12,000,000 C. 4,000,000
B. 2,000,000 D. 60,000,000

6. What amount should be recognized as an expense related to the repayment of grant?

 A. 50,000,000 C. 12,000,000
B. 44,000,000 D. 2,000,000
7. In the case of grants related to an asset, which of these accounting treatments (balance sheet
presentation) is prescribed by PAS 20?
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 in in arriving at the carrying amount of the
asset.
C. Record the grant at fair value in the first year and take it to income in the subsequent year.
D. Take it to the statement of comprehensive income and disclose it as an extraordinary gain.

8. On January 1, 2021, Hakdog Company received cash of P4,000,000 from the government to be used
in constructing a building. The construction was completed on December 31, 2021 for a total cost of
P10,000,000. The building is depreciated over 20 years. On January 1, 2024, the government demanded
repayment of the P4,000,000 grant given as grant in 2021.

What is the amount of loss on repayment of government grant to be reported in 2024?

A. 3,400,000 C. 400,000
B. 600,000 D. 0

9. On January 1, 2021, Feista Company acquired a depreciable asset for P3,300,000 and it this same
date, it received a government grant of P300,000 which was deducted from the cost of the asset
acquired. The asset has 10-year useful life and residual value of P250,000. Feista failed to comply with
the conditions of the grant and on January 1, 2023, the grant became repayable.

What is the depreciation in 2023?

A. 390,000 C. 305,000
B. 365,000 D. 300,000

10. 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 and change in accounting policy

11. On December 31, 2020, Athena Company had an equipment with cost of P9,000,000 and
accumulated depreciation of P3,000,000. Due to obsolescence and physical damage, the equipment was
found to the impaired. On same date, the entity determined that the equipment had a fair value less of
disposal of P4,500,000, discounted net cash inflows of P4,000,000 and undiscounted net cash inflows of
P5,000,000. What is the impairment loss for 2020?
A. 1,500,000 B. 2,000,000 C. 1,000,000 D. 0

Use the following information for the next two (3) questions:
Alyssa Company determined that the electronics division is a cash generating unit. The entity calculated the
value in use of the division at P8,000,000. The carrying amounts of assets are building P5,000,000,
equipment P3,000,000 and inventory P2,000,000. The entity also determined that the fair value less cost of
disposal of the building is P4,500,000.

12. What is the impairment loss on building?

A. 1,000,000 B. 500,000 C. 750,000 D. 0

131 What is the impairment loss on equipment?

A. 600,000 B. 900,000 C. 450,000 D. 0

14. What is the impairment loss on inventory?

A. 400,000 B. 600,000 C. 300,000 D. 0

Use the following information for the next two (3) questions:
On January 1, 2020, Joyce Company purchased equipment with cost of P10,000,000, useful life of 10 years
and no residual value. The entity used straight line depreciation. On December 31, 2020 and December 31,
2021, the entity determined that the impairment indicators are present. There is no change in useful life or
residual value.

December 31, 2020 December 31, 2021

Fair value less cost of disposal 8,100,000 8,300,000
Value in use 8,550,000 8,200,000

15. What is the impairment loss for 2020?

A. 900,000 B. 450,000 C. 600,000 D. 0

16. What is the gain on reversal of impairment for 2021?

A. 400,000 B. 700,000 C. 600,000 D. 0

17. What is the depreciation for 2022?

A. 1,000,000 B. 1,050,000 C. 1,025,000 D. 950,000

Use the following information for the next two (2) questions:
Bloodborne Company has determined that one of its cash generating units (CGU) is impaired. The assets of
the cash generating unit at carrying amount are:
Machinery 1,500,000
Building 3,000,000
Equipment 1,875,000
Furniture and fixture 1,125,000
Goodwill 800,000
The recoverable value of the cash generating units is P7,000,000. The fair value less cost of disposal of the
equipment is P1,825,000.

18. How much impairment loss that should be allocated to equipment?

A. 50,000 C. 75,000
B 125,000 D. 0
.

19. How much is the carrying amount of the building after allocation of the impairment loss?
A. 2,760,000 C. 2,770,000
B 2,800,000 D. 2,069,000
.

20. Which of the following is true regarding the alternative ways to apply the income approach to
accounting of resources acquired through government grants?
A. Expenses will be higher and net income lower if the grant is recorded as deferred income.
B. Expenses will be higher and net income lower if the grant is accounted for as an adjustment to
the asset.
C. Depreciation expense will be higher if the grant is recorded as an adjustment to the asset, but
net income will be the same under the two alternatives.
D. Depreciation expense will be higher if the grant is recorded as deferred income, but net income
will be the same under the two alternatives.