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- 11 Marks
FR – NOV 2016 – L2 – Q5b – Accounting for Government Grants (IAS 20)
Practical application of IAS 20 requirements for government grants including type identification and accounting treatment in financial statements.
Question
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)
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- Tags: Asset-related Grants, Government Grants, Grant Recognition, IAS 20, Plant Cost
- Level: Level 2
- Topic: Accounting for Government Grants
- Series: NOV 2016
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- 4 Marks
FR – NOV 2016 – L2 – Q5a – Accounting for Government Grants (IAS 20)
Question tests understanding of different types of government grants as defined in IAS 20, specifically grants related to assets and income.
Question
In many Countries of the world, Government provides financial assistance to industry in the form of grants. In accordance with IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance. Explain the term:
i. Grant related to Assets (2 Marks)
ii. Grant related to Income (2 Marks)
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- Tags: Asset-related Grants, Government Grants, IAS 20, Income-related Grants
- Level: Level 2
- Topic: Accounting for Government Grants
- Series: NOV 2016
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- 9 Marks
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.
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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
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- 3 Marks
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.
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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
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- 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)
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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
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- 8 Marks
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)
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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
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- 3 Marks
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)
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- 7 Marks
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)
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- Tags: Deferred Income, Government Grants, IAS 20, Repayment
- Level: Level 2
- Topic: IAS 20: Government Grants
- Series: JULY 2023
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- 5 Marks
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.
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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
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- 4 Marks
FR – May 2018 – L2 – Q2a – Financial Reporting Standards and Their Applications
Explain the two ways that the Directors of Sea Fishing Ltd can account for the grant in line with relevant accounting standards.
Question
On 1 October 2016, the Government of Ghana awarded Sea Fishing Ltd one of six licenses issued to operate a production facility for five years. A subsidised sum of GH¢1 million was paid by Sea Fishing Ltd for the license. The Government of Ghana considers the difference between the nominal value and its fair value, which is GH¢3,000,000, as a grant to Sea Fishing Ltd.
Required:
Explain the TWO ways that the Directors of Sea Fishing Ltd can account for this transaction. (Apply the relevant accounting standards). (4 marks)
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- Tags: Government Grant, IAS 20, IFRS, Intangible Assets
- Level: Level 2
- Topic: Financial Reporting Standards and Their Applications
- Series: MAY 2018
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- 3 Marks
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)
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