ACCA106-Intermediate Accounting 2

1st Semester, SY2023-2024 QUIZ-GOVERNMENT GRANT

Multiple Choice. Choose the letter that corresponds to the correct answer.
1. In 2019, X Company received a total grant of P10,000,000. 75% of the grant will be utilized to
purchase a University building for a developing country. The balance of the grant is to be used to
subsidize the tuition fees of students for 4 years from the date of grant. The building was
purchased in the early part of January and is to be depreciated using straight line of 10 years.
The tuition cost incurred for the current year amounted to P500,000.
How much is the accumulated depreciation as of end of 2019?
a. 1,000,000
b. 750,000
c. 562,500
d. 1,500,000
2. Using the problem in no. 1, how much is the income from government grant to be recognized
for 2019?
a. 750,000
b. 1,500,000
c. 1,375,000
d. 3,250,000

3. In 2019, X Company purchased a farm equipment for P4,500,000. The entity received a
government grant of P500,000 for this capital asset. The equipment is to be depreciated on a
straight line basis with a estimated life of 10 years. The residual value is P500,000.

What is the initial balance of the equipment following the deduction from asset approach?
a. 4,000,000
b. 4,500,000
c. 3,500,000
d. 3,600,000
4. Using problem no. 3, what is the depreciation expense using the deduction from asset
approach?
a. 400,000
b. 450,000
c. 350,000
d. 300,000
5. Using problem no. 3, what is the depreciation expense for the period using the deferred income
approach?
a. 400,000
b. 450,000
c. 350,000
d. 300,000
6. Using problem no. 3, how much is the income from government grant to be recognized in 2019?
a. 400,000
b. 350,000
c. 40,000
d. 50,000
500,000 (GG) /10 EUL = 50,000
7. Government grant shall be recognized at fair value when there is an absolute assurance that the
entity will comply with the conditions on the grant and that, the grant will be received.
8. Grant related to asset is recognized as income over the periods in proportion to the
depreciation which basically depend on the depreciation method used.
9. Government grant related to asset shall be presented by way of setting the grant as deferred
income or by deducting the grant in arriving at the fair value of the asset.
10. Repayment of Grant related to asset shall be applied first against any unamortized deferred
income and any excess shall be immediately recognized as expense. F, grant related to income
11. Under PAS 20, which of the following statements is incorrect?
a. Grants in recognition of specific costs are recognized as income over the same period as
the relevant expense.
b. Grants related to depreciable assets are recognized as income over the useful life of the
assets using straight line.
c. Grants related to nondepreciable assets that require fulfillment of certain conditions are
recognized as income over the periods which bear the cost of meeting the conditions.
d. Grants that become receivable as compensation for expense or losses already incurred
are recognized as income of the period in which the grants become receivable.
12. 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
13. What is the accounting treatment of a repayment of grant related to an asset?
I. The repayment shall be recorded by decreasing the carrying amount of the asset or
reducing the deferred income balance by the amount repayable.
II. The cumulative additional depreciation that would have been recognized to date as an
expense in the absence of the grant shall be recognized immediately as an expense.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

14. These are government grants whose primary condition is that an entity qualifying for them
should purchase, construct, or otherwise acquire long-term assets.a. Grants related to assets
b. Grants related to income
c. Government gift
d. Government appropriation
15. Government grants shall be (choose the incorrect statement)
a. Measured at fair value
b. Credited to retained earnings
c. Recognized as deferred income when using the deferred income approach
d. Recognized as income on a systematic and rational basis over the periods necessary to
match them with the related costs