Chapter 18

Government Grants

PROBLEM 1: TRUE OR FALSE

1. TRUE
2. FALSE 0
3. TRUE
4. TRUE
5. FALSE 0
6. TRUE
7. TRUE
8. TRUE
9. TRUE
10. FALSE (2M x 9/10) = 1.8M

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. C
2. C
3. B
4. B

5. Answer: 0

6. Solution:
(6M – 1M) x 29.25/30 + 1M = 5,875,000

7. Solution:
(2M / 30 yrs.) x 9/12 = 50,000

8. Solution:
(6M – 1M) ÷ 30 x 9/12 = 125,000

9. Solution:
(2M x 29.25/30 = 1,950,000

10. Solution:
(6M – 2M – 1M) x 29.25/30 + 1M = 3,925,000

11. Solution:
(6M – 2M – 1M) ÷ 30 x 9/12 = 75,000

12. Solution:
(1.8M x 4 mos. / 6 mos.*) = 1,200,000

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*The income can be recognized on a straight-line basis because the related
costs were incurred evenly.

13. Solution:
(1.8M x 2/6) = 600,000

14. Solution:
(2.7M x 4/6) – (1.8M x 4/6) = 600,000

15. Answer: 200,000

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PROBLEM 3: EXERCISE
Solutions:

Requirement (a):

Gross presentation
Jan. Cash 8,000,000
1, Deferred income –
20x1 government grant 8,000,000
Dec. Building 20,000,000
31, Cash 20,000,000
20x1
Dec. Depreciation expense 1,000,000
31, (20M ÷ 20 years)
20x2 Accumulated depreciation 1,000,000

Deferred income 400,000

(8M ÷ 20 years)
Income from government
Grant 400,000
Dec. Depreciation expense 1,000,000
31, (20M ÷ 20 years)
20x3 Accumulated depreciation 1,000,000

Deferred income 400,000

(8M ÷ 20 years)
Income from government
Grant 400,000

Net presentation
Jan. Cash 8,000,000
1, Deferred income – government
20x1 grant 8,000,000
Dec. Building 20,000,000
31, Cash 20,000,000
20x1
Deferred income – government
grant 8,000,000
Building 8,000,000
Dec. Depreciation expense 600,000
31, (12M ÷ 20 years)
20x2 Accumulated depreciation 600,000

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 Dec. Depreciation expense 600,000
31, (12M ÷ 20 years)
20x2 Accumulated depreciation 600,000

Requirement (b):

GROSS PRESENTATION

20x3 20x2 20x1

Statement of financial position
ASSETS
Building 20,000,000 20,000,000 20,000,000
Accumulated depreciation (2,000,000) (1,000,000) -
Total 18,000,000 19,000,000 20,000,000

LIABILITIES
Deferred income from
government grant 7,200,000 7,600,000 8,000,000

20x3 20x2 20x1

Statement of profit or loss
Income from government grant 400,000 400,000 -
Depreciation expense (1,000,000) (1,000,000) -
Profit (Loss) (600,000) (600,000) -

NET PRESENTATION

20x3 20x2 20x1

Statement of financial position
ASSETS
Building 12,000,000 12,000,000 12,000,000
Accumulated depreciation (1,200,000) (600,000) -
Total 10,800,000 11,400,000 12,000,000

20x3 20x2 20x1

Statement of profit or loss
Depreciation expense (600,000) (600,000) -
Profit (Loss) (600,000) (600,000) -

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PROBLEM 4: CLASSROOM ACTIVITY
Solutions:

Requirement 1:
a. Income from the grant of ₱1M will be recognized in profit or loss as
depreciation is recognized on the equipment.
b. Income from the grant of land will be recognized in profit or loss as
depreciation is recognized on the constructed building.
c. Income from the ₱600,000 grant will be recognized in profit or loss as
expenditures are made on the clean-up drive.
d. Income from the ₱200,000 grant is recognized immediately.

Requirement 2:

Cash 1,000,000
Deferred income from government grant 1,000,000

Land 800,000
Deferred income from government grant 800,000

Cash 600,000
Deferred income from government grant 600,000

Cash 200,000
Income from government grant 200,000

Requirement 3:

Equipment 1,200,000
Cash 1,200,000

Depreciation expense 300,000

Accumulated depreciation 300,000

SYD = {5 x [(5+1)/2]} = 15
(1,200,000 x 90%) x 5/15 x 10/12 = 300,000

Deferred income from government grant – Equipment 277,778

Income from government grant – Equipment 277,778

1,000,000 x 5/15 x 10/12 = 277,778

Building 2,000,000
Cash 2,000,000

Clean-up drive expense 720,000

Cash 720,000

Deferred income from government grant – Clean-up drive 600,000

Income from government grant 600,000
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Requirement 4:
20x1
Statement of financial position
ASSETS
Land 800,000
Building – construction in progress 2,000,000
Equipment 1,200,000
Accumulated depreciation - Equipment (300,000)
Total 3,700,000

LIABILITIES
Deferred income from government grant 1,522,222

20x1
Statement of profit or loss
Income from government grant 1,077,778
Clean-up drive expense (720,000)
Depreciation expense (300,000)
Profit (Loss) 57,778

PROBLEM 5: MULTIPLE CHOICE - THEORY

1. E 6. A
2. E 7. C
3. C 8. B
4. D 9. C
5. A 10. D

PROBLEM 6: MULTIPLE CHOICE: COMPUTATIONAL

1. D

2. A (150,000 x 2/4) = 75,000; (13,500 x 2/4) = 6,750

3. D (360,000 – 50,000 – 5,000) ÷ 8 = 38,125

4. C (135,000 – 13,500) = 121,500 net historical cost;

121,500 x 80%* x 20% = 19,440

* 100% - 20% double declining balance rate = 80%