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    A2 - Government Grant: Solution

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    Lyka Nicole Dorado
    The document contains 4 problems regarding accounting for government grants. The problems address how to record and account for grants used to purchase assets, provide loans at below-market interest rates, and compensate for expenses. The problems require calculating amounts such as depreciation, interest expense, deferred grant income balances, and grant income over multiple periods.

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    A2 - Government Grant: Solution

    Uploaded by

    Lyka Nicole Dorado
    14K views4 pages
    The document contains 4 problems regarding accounting for government grants. The problems address how to record and account for grants used to purchase assets, provide loans at below-market interest rates, and compensate for expenses. The problems require calculating amounts such as depreciation, interest expense, deferred grant income balances, and grant income over multiple periods.

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    A2_-_Government_Grant_Solution

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    The document contains 4 problems regarding accounting for government grants. The problems address how to record and account for grants used to purchase assets, provide loans at below-market interest rates, and compensate for expenses. The problems require calculating amounts such as depreciation, interest expense, deferred grant income balances, and grant income over multiple periods.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    14K views4 pages

    A2 - Government Grant: Solution

    Uploaded by

    Lyka Nicole Dorado
    The document contains 4 problems regarding accounting for government grants. The problems address how to record and account for grants used to purchase assets, provide loans at below-market interest rates, and compensate for expenses. The problems require calculating amounts such as depreciation, interest expense, deferred grant income balances, and grant income over multiple periods.

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    © All Rights Reserved
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    A2 – Government Grant

    Problem 1

    On January 1, 2019, Goddess Company purchased a plating machine for P5,400,000. The entity received
    a government grant of P400,000 toward the asset cost. The machine is to be depreciated on a 20%
    reducing balance basis over 10 years with residual value of P200,000. The accounting policy is to treat
    the government grant as a reduction in the cost of the asset.

    QUESTION:

    The carrying amount of the machine on December 31, 2020 is P _

    Answer: P3,200,000

    Solution:

    Problem 2

    Patriotic Company purchased a machine for P6,600,000 on January 1, 2019 and received a government
    grant of P600,000 toward the asset cost. The accounting policy is to treat the grant as a reduction in the
    cost of the asset. The machine is to be depreciated on a straight line basis over 10 years with a residual
    value of P500,000. On January 1, 2021, the grant became fully repayable because of noncompliance with
    conditions.

    QUESTIONS:

    1. The depreciation for 2019 is P _


    2. The depreciation for 2021 is P _

    Answer:

    1. P550,000
    2. P730,000

    Solution:

    1.

    2.
    Problem 3

    On January 1, 2019, the city government agreed to provide Probity Company with a P5,000,000 three-
    year, zero-interest loan evidenced by promissory note. The prevailing rate of interest for a loan of this
    type is 10% and the present value of 1 at 10% for three years is .75.

    QUESTIONS:
    1. To record the loan and the grant, the debit to Discount on Note Payable is P _

    2. To record the loan and the grant, the credit to Deferred Grant Income is P _

    3. To record the loan and the grant, the credit to Note Payable is P _

    4. The interest expense for 2019 is P _

    5. The deferred grant income on December 31, 2019 is P _

    6. The carrying amount of the note payable on December 31, 2020 is P _

    Answers:

    1. P1,250,000
    2. P1,250,000
    3. P5,000,000
    4. P375,000
    5. P875,000
    6. P4,537,500

    Solution:

    1-3:

    4:

    5:

    6:
    Problem 4

    An entity received a government grant under the following independent situations. Answer the
    questions provided in each case.

    I. An entity received a grant of P30,000,000 from the British government in order to defray
    safety and environmental costs within the area where the entity is located. The safety
    environmental costs are expected to be incurred over four years, respectively, P2,000,000,
    P4,000,000, P6,000,000 and P8,000,000.

    QUESTIONS:
    1. The environmental expenses to be debited for the first year is P _
    2. The grant income for the first year is P _

    II. An entity received a grant of P40,000,000 from the American government for the
    construction of laboratory and research facility with an estimated cost of P50,000,000 and
    useful life of 20 years.

    QUESTIONS:
    3. The depreciation for the first year is P _
    4. The grant income for the first year is P _

    III. An entity is granted a large tract of land in Cordillera by the Philippine Government. The fair
    value of the land is P50,000,000. The grant requires that the entity shall construct a factory
    and employ only personnel residing in the Cordillera region. The cost of the factory is
    P80,000,000 with useful life of 25 years.

    QUESTIONS:
    5. The carrying amount of the Building as of the end of year 1 is P _
    6. The deferred grant income balance as of the end of year 1 is P _

    IV. An entity received a grant of P10,000,000 from the Australian government to compensate
    for massive losses incurred because of a recent earthquake.

    QUESTION:

    7. The grant income for the first year is P _

    Answers:
    1. P2,000,000
    2.P3,000,000
    3. P2,500,000
    4. P2,000,000
    5. P76,800,000
    6. P48,000,000
    7. P10,000,000

    Solution:

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