Question Tag: Grant Recognition

Prospect Nigeria Plc obtained a grant of N100million from the Federal Government of Nigeria (FGN) for an investment project to construct a plant costing N880million.

The principal terms of the grant are as follows:

• Grant payment will be made subject to attaining the minimum level of the plant expenditure.
• The secondary intention of the grant is to safeguard 500 jobs.
• The grant will have to be repaid pro-rata if there is an under spending on capital.
• Twenty percent (20%) of the grant will have to be paid if the jobs are not safeguarded until 18 months after the date of the cost of capital expenditure.

Prospect Nigeria Plc completed the construction of plant on January 1, 2013 at a total cost of N900million. The plant has an expected useful life of 20 years and is depreciated on a straight line basis with no residual value.

Required:

i. State the type of grant that Prospect Nigeria Plc has obtained giving reasons for your answer. (3 Marks)

ii. Show how the Asset and the grant would be reflected in the Statement of Financial Position and Statement of Profit or Loss for years ended December 31, 2013; 2014 and 2015 under both methods of Accounting for Grants allowed by IAS 20. (8 Marks)