Question Tag: Government Grants

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CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction

Discuss the accounting treatment for a government grant received for the construction of a factory, showing calculations and relevant entries.

Question

On 1 January 2018, Asankragua Ltd (Asankragua) applied to a government agency for a grant to assist with the construction of a factory in Enchi. The proposed construction cost of the factory was GH¢52 million and the company projected that 350 people would be employed after completion. The land was already owned by Asankragua.

On 1 March 2018, the government agency offered to grant a sum amounting to 25% of the factory’s construction cost to a maximum of GH¢13 million. The grant aid was to be advanced on completion and would be repayable on demand if total employment at the factory fell below 300 people within 5 years of completion.

At the financial year end, 31 March 2018, Asankragua had accepted the offer of grant aid and had signed contracts for the construction of the factory at a total cost of GH¢52 million. Construction work was due to commence on 1 April 2018.

By 31 March 2019, the factory had been completed on budget, 400 people were employed ready to commence manufacturing activities, and the government agency agreed that the conditions necessary for the drawdown of the grant had been met.

On 1 April 2019, the factory was brought into use. It was estimated that it would have a ten-year useful economic life. On 1 June 2019, the government agency paid over the agreed GH¢13 million. In addition, the company sought and was paid an employment grant of GH¢1.2 million as employment exceeded original projections. This is expected to be payable annually for 5 years in total, at a rate of GH¢12,000 per additional person employed over 300 in each year. There are no repayment provisions attached to the employment grant.

The directors of Asankragua expect employment levels to exceed 350 people for at least 4 further years from 31 March 2020.

Required:
Demonstrate, showing calculations and relevant entries, how Asankragua Ltd should record the above transactions and events in its financial statements for years ended 31 March 2018, 2019, and 2020.

Answer

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Tags: Capital Commitment, Deferred Income, Factory Construction, Government Grants, IAS 20
Level: Level 3

Topic: IAS 20 and IAS 40)
Series: MAY 2020

FR – May 2020 – L2 – Q2d – Accounting for Government Grants under IAS 20

Explain the financial reporting treatment of government grants in Dambai Ltd’s financial statements under IAS 20.

Question

Dambai Ltd is a large manufacturing company. During the year, it decided to relocate some operations to a regional development area, which offers attractive labour costs and tax incentives. The regional government agreed to contribute GH¢200,000 as a result of Dambai setting up in the regional development area. There are no particular conditions as to what the money should be spent on. The cash was received on 1 August 2019.

Required:
In accordance with IAS 20: Accounting for Government Grants and Disclosure of Government Assistance, explain the financial reporting treatment of the above in the financial statements of Dambai for the year ended 31 December 2019.

Answer

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Tags: Financial Reporting, Government Grants, IAS 20, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: MAY 2020

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)

Answer

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Tags: Disclosure of Government Assistance, Government Grants, IAS 20, Tax Relief
Level: Level 2

Topic: IAS 20: Government Grants
Series: MAY 2021

FR – Mar/Jul 2020 – L2 – Q4a – Accounting for Government Grants (IAS 20)

Explain types and methods of government grants under IAS 20 and prepare extracts of financial statements for Gbogbonise Enterprises.

Question

a. The Federal Government of Nigeria is committed to improving Medium, Small and Micro Enterprises (MSME) programme. In view of this, the government issued directives to the Central Bank of Nigeria (CBN) to give grants to MSME that has at least 25% local equity participation.

Required:
(i) Explain the TWO types of grant/government assistance that are recognised by IAS 20 on accounting for government grants and disclosure of government assistance.
(ii) Outline the TWO methods of presenting grant/government assistance that are recognised by IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance. (8 Marks)

Answer

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Tags: Accounting Policies, Financial Statements, Government Grants, IAS 20, MSME
Level: Level 2

Topic: Accounting for Government Grants
Series: MAR/JULY 2020

FR – April 2022 – L2 – Q2c – Conceptual Framework for Financial Reporting

Determine the appropriate accounting treatment for a government grant received by Karikari Ltd for the purchase of a new plant and its impact on the financial statements.

Question

c) On 1 June 2020, Karikari Ltd received a Government of Ghana grant of GH¢8 million towards the purchase of a new plant with a gross cost of GH¢64 million. The plant has an estimated life of 10 years and is depreciated on a straight-line basis. One of the terms of the grant is that the sale of the plant before 31 May 2024 would trigger a repayment on a sliding scale as follows:

The directors propose to credit the statement of profit or loss with GH¢2 million (GH¢8 million @ 25%) being the amount of the grant they believe has been earned in the year ended 31 May 2021. Karikari Ltd accounts for government grants as a separate item of deferred credit in its statement of financial position. Karikari Ltd has no intention of selling the plant before the end of its useful economic life.

Required:
Explain with computations, the appropriate accounting treatment of the above transaction in accordance with IAS 20 Government Grants and Disclosure of Government Assistance in the financial statements of Karikari Ltd for the year ended 31 May 2021. (3 marks)

Answer

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Tags: Deferred Income, Government Grants, IAS 20, Plant Depreciation, Profit or Loss Impact, Sliding Scale Repayment
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: APR 2022

FR – July 2023 – L2 – Q2c – Government Grants (IAS 20)

Accounting treatment of a government grant in Pampaso Ltd after partial repayment due to non-compliance.

Question

Pampaso Ltd is a fruit processing company listed on the Ghana Stock Exchange with a financial year-end of 31 December. The trial balance for the year ended 31 December 2021 showed a credit balance for government grant of GH¢1,800.

As part of the Local government’s initiative to stimulate employment of fresh graduates from Tertiary institutions in the locality, Pampaso Ltd received a grant of GH¢3 million towards the purchase of additional production machinery on 1 January 2019. The company, accordingly, acquired additional production machinery costing GH¢3 million on that date. The condition attached to the grant was for Pampaso Ltd to employ at least three fresh graduates every year over the estimated five-year useful life of the production machinery. Since January 2019, the company has only recruited one fresh graduate annually.

The non-compliance of the company with the conditions attached to the grant has come to the attention of the Local government, and as a result, the company was instructed on 1 January 2021 to repay 50% of the grant received within eighteen months. Pampaso Ltd uses the deferred income method in accounting for government grants.

Required:
Advise Management of Pampaso Ltd on the accounting treatment of the grant in accordance with IAS 20: Accounting for Government Grants and Disclosure of Government Assistance for the year ended 31 December 2021.
(Total: 7 marks)

Answer

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Tags: Deferred Income, Government Grants, IAS 20, Repayment
Level: Level 2

Topic: IAS 20: Government Grants
Series: JULY 2023

FR – Nov 2021 – L2 – Q5c – Financial Reporting Standards and Their Applications

Distinguishing between government grants and government assistance with examples of each in accordance with IAS 20.

Question

In accordance with IAS 20: Accounting for Government Grants and Disclosure of Government Assistance, distinguish between government grants and government assistance, giving two examples each. (5 marks)

Answer

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Tags: Disclosure, Financial Reporting, Government Assistance, Government Grants, IAS 20
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: NOV 2021

CR – May 2019 – L3 – Q2c – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

This question requires an explanation of the accounting treatment of government grants relating to capital expenditure under IAS 20.

Question

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance sets out the requirements for recognizing as income any grants received from government agencies, together with any repayments of such grants.

Required:
Detail the requirements of IAS 20 with respect to government grants to aid capital expenditure. (3 marks)

Answer

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Tags: Capital Expenditure, Government Grants, IAS 20
Level: Level 3

Topic: Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)
Series: MAY 2019

CR – Nov 2017 – L3 – Q2a – IAS 20

Explain the financial reporting treatment for a grant awarded for equipment purchase and subsequent repayment under IAS 20.

Question

Dodowa Ltd is a large textile manufacturing company. Wherever possible, it structures its operations to take advantage of any financial assistance available from national and regional authorities.

During the year, a heavy-duty equipment was purchased for Dodowa Ltd’s main manufacturing operation for GH¢12 million on 1 April 2015. The equipment was expected to be used for 10 years, with a zero residual value. Dodowa Ltd pre-applied for a government grant on 1 January 2015, meeting all necessary criteria for awarding the grant. On 1 February 2015, the grant was awarded for 40% of the equipment’s cost and the cash was received on 1 July 2015. Conditions relating to maintaining employment are attached to the grant and if they are not satisfied, then the grant becomes repayable, or partly repayable.

Dodowa Ltd expected to meet these conditions when the grant was applied for. However, due to worsening economic conditions, redundancies for some staff on 31 December 2016 resulted in a repayment of 10% of the original grant becoming due. The repayment was made on 1 February 2017. Dodowa Ltd accounted for the grant as a reduction in the carrying amount of the asset.

Required:
Explain, with suitable calculations, the financial reporting treatment of the above in the financial statements of Dodowa Ltd for the year ended 31 December 2016 in accordance with IAS 20: Accounting for Government Grants and Disclosure of Government Assistance.

Answer

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Tags: Asset Valuation, Depreciation, Government Grants, Grant Repayment
Level: Level 3

Topic: IAS 20 and IAS 40)
Series: NOV 2017

CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction

Discuss the accounting treatment for a government grant received for the construction of a factory, showing calculations and relevant entries.

Question

The directors of Asankragua expect employment levels to exceed 350 people for at least 4 further years from 31 March 2020.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Commitment, Deferred Income, Factory Construction, Government Grants, IAS 20
Level: Level 3

Topic: IAS 20 and IAS 40)
Series: MAY 2020

FR – May 2020 – L2 – Q2d – Accounting for Government Grants under IAS 20

Explain the financial reporting treatment of government grants in Dambai Ltd’s financial statements under IAS 20.

Question

Answer

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Tags: Financial Reporting, Government Grants, IAS 20, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: MAY 2020

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

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.

Answer

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

FR – Mar/Jul 2020 – L2 – Q4a – Accounting for Government Grants (IAS 20)

Explain types and methods of government grants under IAS 20 and prepare extracts of financial statements for Gbogbonise Enterprises.

Question

Answer

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Tags: Accounting Policies, Financial Statements, Government Grants, IAS 20, MSME
Level: Level 2

Topic: Accounting for Government Grants
Series: MAR/JULY 2020

FR – April 2022 – L2 – Q2c – Conceptual Framework for Financial Reporting

Determine the appropriate accounting treatment for a government grant received by Karikari Ltd for the purchase of a new plant and its impact on the financial statements.

Question

Answer

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Tags: Deferred Income, Government Grants, IAS 20, Plant Depreciation, Profit or Loss Impact, Sliding Scale Repayment
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: APR 2022

FR – July 2023 – L2 – Q2c – Government Grants (IAS 20)

Accounting treatment of a government grant in Pampaso Ltd after partial repayment due to non-compliance.

Question

Answer

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Tags: Deferred Income, Government Grants, IAS 20, Repayment
Level: Level 2

Topic: IAS 20: Government Grants
Series: JULY 2023

FR – Nov 2021 – L2 – Q5c – Financial Reporting Standards and Their Applications

Distinguishing between government grants and government assistance with examples of each in accordance with IAS 20.

Question

Answer

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Tags: Disclosure, Financial Reporting, Government Assistance, Government Grants, IAS 20
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: NOV 2021

CR – May 2019 – L3 – Q2c – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

This question requires an explanation of the accounting treatment of government grants relating to capital expenditure under IAS 20.

Question

Required:
Detail the requirements of IAS 20 with respect to government grants to aid capital expenditure. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Expenditure, Government Grants, IAS 20
Level: Level 3

Topic: Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)
Series: MAY 2019

CR – Nov 2017 – L3 – Q2a – IAS 20

Explain the financial reporting treatment for a grant awarded for equipment purchase and subsequent repayment under IAS 20.

Question

Dodowa Ltd is a large textile manufacturing company. Wherever possible, it structures its operations to take advantage of any financial assistance available from national and regional authorities.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Valuation, Depreciation, Government Grants, Grant Repayment
Level: Level 3

Topic: IAS 20 and IAS 40)
Series: NOV 2017

Question Tag: Government Grants

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CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction

Discuss the accounting treatment for a government grant received for the construction of a factory, showing calculations and relevant entries.

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FR – May 2020 – L2 – Q2d – Accounting for Government Grants under IAS 20

Explain the financial reporting treatment of government grants in Dambai Ltd’s financial statements under IAS 20.

You're reporting an error for "FR – May 2020 – L2 – Q2d – Accounting for Government Grants under IAS 20"

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

You're reporting an error for "FR – May 2021 – L2 – Q2b – Accounting for Government Grants under IAS 20"

FR – Mar/Jul 2020 – L2 – Q4a – Accounting for Government Grants (IAS 20)

Explain types and methods of government grants under IAS 20 and prepare extracts of financial statements for Gbogbonise Enterprises.

You're reporting an error for "FR – Mar/Jul 2020 – L2 – Q4a – Accounting for Government Grants (IAS 20)"

FR – April 2022 – L2 – Q2c – Conceptual Framework for Financial Reporting

Determine the appropriate accounting treatment for a government grant received by Karikari Ltd for the purchase of a new plant and its impact on the financial statements.

You're reporting an error for "FR – April 2022 – L2 – Q2c – Conceptual Framework for Financial Reporting"

FR – July 2023 – L2 – Q2c – Government Grants (IAS 20)

Accounting treatment of a government grant in Pampaso Ltd after partial repayment due to non-compliance.

You're reporting an error for "FR – July 2023 – L2 – Q2c – Government Grants (IAS 20)"

FR – Nov 2021 – L2 – Q5c – Financial Reporting Standards and Their Applications

Distinguishing between government grants and government assistance with examples of each in accordance with IAS 20.

You're reporting an error for "FR – Nov 2021 – L2 – Q5c – Financial Reporting Standards and Their Applications"

CR – May 2019 – L3 – Q2c – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

This question requires an explanation of the accounting treatment of government grants relating to capital expenditure under IAS 20.

You're reporting an error for "CR – May 2019 – L3 – Q2c – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)"

CR – Nov 2017 – L3 – Q2a – IAS 20

Explain the financial reporting treatment for a grant awarded for equipment purchase and subsequent repayment under IAS 20.

You're reporting an error for "CR – Nov 2017 – L3 – Q2a – IAS 20"

CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction

Discuss the accounting treatment for a government grant received for the construction of a factory, showing calculations and relevant entries.

You're reporting an error for "CR – May 2020 – L3 – Q2a – Government Grants for Factory Construction"

FR – May 2020 – L2 – Q2d – Accounting for Government Grants under IAS 20

Explain the financial reporting treatment of government grants in Dambai Ltd’s financial statements under IAS 20.

You're reporting an error for "FR – May 2020 – L2 – Q2d – Accounting for Government Grants under IAS 20"

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

You're reporting an error for "FR – May 2021 – L2 – Q2b – Accounting for Government Grants under IAS 20"

FR – Mar/Jul 2020 – L2 – Q4a – Accounting for Government Grants (IAS 20)

Explain types and methods of government grants under IAS 20 and prepare extracts of financial statements for Gbogbonise Enterprises.

You're reporting an error for "FR – Mar/Jul 2020 – L2 – Q4a – Accounting for Government Grants (IAS 20)"

FR – April 2022 – L2 – Q2c – Conceptual Framework for Financial Reporting

Determine the appropriate accounting treatment for a government grant received by Karikari Ltd for the purchase of a new plant and its impact on the financial statements.

You're reporting an error for "FR – April 2022 – L2 – Q2c – Conceptual Framework for Financial Reporting"

FR – July 2023 – L2 – Q2c – Government Grants (IAS 20)

Accounting treatment of a government grant in Pampaso Ltd after partial repayment due to non-compliance.

You're reporting an error for "FR – July 2023 – L2 – Q2c – Government Grants (IAS 20)"

FR – Nov 2021 – L2 – Q5c – Financial Reporting Standards and Their Applications

Distinguishing between government grants and government assistance with examples of each in accordance with IAS 20.

You're reporting an error for "FR – Nov 2021 – L2 – Q5c – Financial Reporting Standards and Their Applications"

CR – May 2019 – L3 – Q2c – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

This question requires an explanation of the accounting treatment of government grants relating to capital expenditure under IAS 20.

You're reporting an error for "CR – May 2019 – L3 – Q2c – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)"

CR – Nov 2017 – L3 – Q2a – IAS 20

Explain the financial reporting treatment for a grant awarded for equipment purchase and subsequent repayment under IAS 20.

You're reporting an error for "CR – Nov 2017 – L3 – Q2a – IAS 20"

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