CHAPTER 1: IAS 20 GOVT GRANT

1. OBJECTIVE BASED Q&A

01. On 1 January 2021 Aim Limited (AL) received Rs. 1,000,000 from the local government on the
condition that they employ at least 150 persons each year for the next 4 years.
Due to an economic downturn and reduced consumer demand on 1 January 2022, AL no longer
needed to employ any more staff and the conditions of the grant required full repayment.
What should be recorded in the financial statements on 1 January 2022?
(a) Reduce deferred income balance by Rs. 750,000
(b) Reduce deferred income by Rs. 750,000 and recognize a loss of Rs. 250,000
(c) Reduce deferred income by Rs. 1,000,000
(d) Reduce deferred income by Rs. 1,000,000 and recognize a gain of Rs. 250,000

02. Which of the following are acceptable methods of accounting for a government grant relating to an
asset in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government
Assistance?
(i) Set up the grant as deferred income
(ii) Credit the amount received to profit or loss
(iii) Deduct the grant from the carrying amount of the asset
(iv) Add the grant to the carrying amount of the asset
(a) (i) and (ii)
(b) (ii) and (iv)
(c) (i) and (iii)
(d) (iii) and (iv)

03. On 1 January 2019, Boom Limited (BL) received Rs. 2,000,000 from the local government on the
condition that they employ at least 200 staff each year for the next 4 years. On this date, it was
virtually certain that BL would meet these requirements.
However, on 1 January 2022, due to an economic downturn and reduced consumer demand, BL no
longer needed to employ 100 staff. The conditions of the grant required half repayment.
What should be recorded in the financial statements on 1 January 2022 for repayment of grant?
(a) Debit Deferred grant by Rs. 500,000 and PL by Rs. 500,000
(b) Debit Deferred grant by Rs. 250,000 and PL by Rs. 250,000
(c) Debit Deferred grant by Rs. 1,500,000 and PL by Rs. 500,000
(d) Debit Deferred grant by Rs. 500,000 and PL by Rs. 1,500,000

04. Which TWO of the following statements about IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance are true?
(a) A government grant related to the purchase of an asset must be deducted from the
carrying amount of the asset in the statement of financial position.
(b) A government grant related to the purchase of an asset should be recognised in profit or
loss over the life of the asset.
 (c) Free marketing advice provided by a government department is excluded from the
definition of government grants.
(d) Any required repayment of a government grant received in an earlier reporting period
is treated as prior period adjustment.

05. A manufacturing entity receives a grant of Rs. 1,000,000 towards the purchase of a machine on 1
January 2013. The grant will be repayable if the entity sells the asset within 4 years, which it does
not intend to do. The asset has a useful life of 5 years.
What is the deferred income liability balance at 30 June 2013?
(a) Rs. 750,000

AT A GLANCE
(b) Rs. 800,000
(c) Rs. 875,000
(d) Rs. 900,000

06. A company receives a government grant of Rs. 500,000 on 1 April 2017 to facilitate purchase on the
same day of an asset which costs Rs. 750,000. The asset is depreciated on a 30% reducing balance
basis assuming that the residual value is negligible. Company policy is to account for all grants
received as deferred income.
What amount of income will be recognized in respect of the grant in the year to 31 March 2019?
(a) Rs. 500,000

SPOTLIGHT
(b) Rs. 150,000
(c) Rs. 350,000
(d) Rs. 105,000

07. A manufacturing entity is entitled to a grant of Rs. 3 million for creating 50 jobs and maintaining
them for three years. Rs. 1.5m is received when the jobs are created and the remaining Rs. 1.5m is
receivable after three years, provided that the 50 jobs are still in existence. The entity creates 50
jobs at the beginning of year one and there is reasonable assurance that this level of employment
will be maintained.

STICKY NOTES
What is the amount of liability (net) to be presented in statement of financial position as at the end
of the first year?
(a) Rs. 500,000
(b) Rs. 1,000,000
(c) Rs. 1,500,000
(d) Rs. 3,000,000

08. If a government grant must be repaid, then it is;

(a) An error
(b) A change in accounting policy
(c) A change in accounting estimate
(d) A new transaction
 09. If an entity receives a non-monetary asset as a grant, this is accounted for at the;
(a) Market value
(b) Fair value
(c) Net realizable value
(d) Present value

10. Which of the following are not considered government assistance in accordance with IAS 20?
(a) Provision of infrastructure in development areas
(b) Employment grants
AT A GLANCE

(c) Subsidized loans

(d) Forgivable loans

11. Which of the following is not a correct treatment of government grants related to depreciable asset?
(a) Deferred income
(b) Credit to income in period received
(c) Deducting the grant from the carrying amount of the asset
(d) None of the above
SPOTLIGHT

12. Which of the following is not a correct treatment of government grants related to income?
(a) Present as ‘other income’
(b) Deduct from the related expense
(c) Deduct from the cost of the asset
(d) None of the above

13. The forgivable loan from government is accounted for as if there is no

reasonable assurance that the entity will meet the terms for forgiveness of loan.
(a) a liability
STICKY NOTES

(b) an income
(c) a government assistance
(d) a government grant

14. On 1 January 2019, a company purchased an asset for Rs. 5 million against which it received the
government grant of Rs. 0.5 million. The company deducted the grant from the cost of asset. It is
the policy of the company to depreciate such assets using straight line method over ten years. On 1
January 2021, the government grant became repayable due to non-fulfilment of conditions.
Repayment of grant will result in increasing:
(a) carrying value by Rs. 0.5 million
(b) carrying value by Rs. 0.4 million
(c) expense by Rs. 0.4 million
(d) expense by Rs. 0.5 million
15. As per IAS 20 ‘Accounting for Government Grants and Disclosure of Government Assistance’,
presenting the whole grant as other income in the statement of comprehensive income or
deducting it from a related expense, is the correct treatment of:
(a) grant related to income
(b) forgivable loan expected to be received in next year
(c) government assistance in the form of free technical advice
(d) grant related to assets

AT A GLANCE
SPOTLIGHT
STICKY NOTES