- 6 Marks
FR – May 2021 – L2 – Q2b – Accounting for Government Grants under IAS 20
Explain how government grants and tax reliefs should be accounted for under IAS 20
Question
Tango Ltd, a manufacturer and supplier of cashew products, has recently established a new facility in Damongo. To help in this new operation, Tango Ltd has secured support from the Government of Ghana and is unsure how the grants are to be accounted for in the financial statements. The company has a year-end of 30 April 2021, and all the following transactions took place on 1 May 2020.
i) A grant of GH¢150,000 was paid to a company to allow it to settle its outstanding accounts payable and prevent it from going into liquidation.
ii) A grant of 50% tax relief, the net effect of which is estimated at GH¢85,000 per annum, for establishing a manufacturing company in the area to provide employment for the youth.
iii) Tango Ltd receives a grant of GH¢300,000 towards the acquisition of a machine costing GH¢500,000. The machine has a useful life of five years.
Required:
Explain how each of the above should be accounted for in the financial statements of Tango Ltd for the year ended 30 April 2021, in accordance with IAS 20: Accounting for Government Grants and Disclosure of Government Assistance.
(6 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Disclosure of Government Assistance, Government Grants, IAS 20, Tax Relief
- Level: Level 2
- Topic: IAS 20: Government Grants
- Series: MAY 2021