Topic: Accounting for Government Grants

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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.

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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  • 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.

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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  • 12 Marks

FR – March 2020 – L2 – Q4b – Financial Statement Presentation of Government Grants

Prepare financial statement extracts using two methods of presenting government grants under IAS 20

b. During the year ended June 30, 2019, Gbogbonise Enterprises having qualified for the 25% local equity participation, received the following grants from Central Bank of Nigeria (CBN).

(i) On September 1, 2018, a grant of N1 million was received from CBN. The grant was in respect of training casual workers. The training cost incurred by Gbogbonise Enterprises in this respect, was N1.75 million.

(ii) On November 1, 2018, Gbogbonise Enterprises acquired plant and equipment costing N8.75 million and received a grant of N2.5 million from Central Bank of Nigeria (CBN) in respect of the purchase. The plant and equipment which has a residual value of N1.25 million is depreciated on straight-line basis over its useful life of 5 years.

(iii) On June 1, 2019, a grant of N2.5 million was made by CBN. The grant was in respect of relocation costs that Gbogbonise Enterprises had incurred for movement of its business to a free trade zone allocated to Medium, Small and Micro Enterprises (MSME). The grant is repayable in full unless Gbogbonise Enterprises recruits at least one hundred (100) employees from the free trade zone local area by the end of the month of June 2019. Gbogbonise is finding it difficult to recruit this number of employees in the local area.

Required:
Prepare extracts of the statement of financial position and statement of profit or loss of Gbogbonise Enterprises for the year ended June 30, 2019 using the two methods of presenting grants in the financial statement of business entities. (12 Marks)

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  • 7 Marks

FR – May 2019 – L2 – Q6b – Accounting for Government Grants (IAS 20)

Calculation of the amount to be capitalized for qualifying capital work-in-progress under IAS 23.

Jacko Company Limited has three major sources of borrowings stated below as at 1 January 2018.

Types Average Loan in the Year (N’000) Interest Expense Incurred in the Year (N’000) Income Earned from Temporary Investment of the Amount Borrowed (N’000)
7 years loan notes 128,000 20,000 12,480
10 years loan notes 160,000 14,400 —
Bank overdraft 80,000 14,400 —

The 7 years loan notes have been specifically raised to fund the building of a qualifying asset.

During the year to 31 December 2018, Jacko Company Limited spent N144 million on the building and the fair value of the building is N147 million as at 31 December 2018.

The company also incurred the following expenditure on a qualifying project funded from the other borrowings for the year ended 31 December 2018.

Date Incurred Amount (N’000)
31 March 2018 16,000
31 July 2018 19,200
31 October 2018 12,600

Required:
Calculate the amount to be capitalized in respect of the qualifying capital work-in-progress for the year ended 31 December 2018.

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  • 8 Marks

FR – May 2019 – L2 – Q6a – Accounting for Government Grants (IAS 20)

Discussion of the conditions for capitalizing borrowing costs under IAS 23 and guidelines on commencement, suspension, and cessation of capitalization.

A company might incur significant interest cost if it has to raise a loan to finance the purchase or construction of an asset. IAS 23 on borrowing costs defines borrowing costs and sets out guidance on the circumstances under which such interest is to be capitalized as part of the cost of qualifying assets.

Required:
Discuss the conditions that must be met in order to capitalize borrowing costs under IAS 23, setting out when capitalization of the borrowing costs should commence, be suspended, or cease.

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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.

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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  • 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.

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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  • 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.

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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  • 12 Marks

FR – March 2020 – L2 – Q4b – Financial Statement Presentation of Government Grants

Prepare financial statement extracts using two methods of presenting government grants under IAS 20

b. During the year ended June 30, 2019, Gbogbonise Enterprises having qualified for the 25% local equity participation, received the following grants from Central Bank of Nigeria (CBN).

(i) On September 1, 2018, a grant of N1 million was received from CBN. The grant was in respect of training casual workers. The training cost incurred by Gbogbonise Enterprises in this respect, was N1.75 million.

(ii) On November 1, 2018, Gbogbonise Enterprises acquired plant and equipment costing N8.75 million and received a grant of N2.5 million from Central Bank of Nigeria (CBN) in respect of the purchase. The plant and equipment which has a residual value of N1.25 million is depreciated on straight-line basis over its useful life of 5 years.

(iii) On June 1, 2019, a grant of N2.5 million was made by CBN. The grant was in respect of relocation costs that Gbogbonise Enterprises had incurred for movement of its business to a free trade zone allocated to Medium, Small and Micro Enterprises (MSME). The grant is repayable in full unless Gbogbonise Enterprises recruits at least one hundred (100) employees from the free trade zone local area by the end of the month of June 2019. Gbogbonise is finding it difficult to recruit this number of employees in the local area.

Required:
Prepare extracts of the statement of financial position and statement of profit or loss of Gbogbonise Enterprises for the year ended June 30, 2019 using the two methods of presenting grants in the financial statement of business entities. (12 Marks)

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  • 7 Marks

FR – May 2019 – L2 – Q6b – Accounting for Government Grants (IAS 20)

Calculation of the amount to be capitalized for qualifying capital work-in-progress under IAS 23.

Jacko Company Limited has three major sources of borrowings stated below as at 1 January 2018.

Types Average Loan in the Year (N’000) Interest Expense Incurred in the Year (N’000) Income Earned from Temporary Investment of the Amount Borrowed (N’000)
7 years loan notes 128,000 20,000 12,480
10 years loan notes 160,000 14,400 —
Bank overdraft 80,000 14,400 —

The 7 years loan notes have been specifically raised to fund the building of a qualifying asset.

During the year to 31 December 2018, Jacko Company Limited spent N144 million on the building and the fair value of the building is N147 million as at 31 December 2018.

The company also incurred the following expenditure on a qualifying project funded from the other borrowings for the year ended 31 December 2018.

Date Incurred Amount (N’000)
31 March 2018 16,000
31 July 2018 19,200
31 October 2018 12,600

Required:
Calculate the amount to be capitalized in respect of the qualifying capital work-in-progress for the year ended 31 December 2018.

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  • 8 Marks

FR – May 2019 – L2 – Q6a – Accounting for Government Grants (IAS 20)

Discussion of the conditions for capitalizing borrowing costs under IAS 23 and guidelines on commencement, suspension, and cessation of capitalization.

A company might incur significant interest cost if it has to raise a loan to finance the purchase or construction of an asset. IAS 23 on borrowing costs defines borrowing costs and sets out guidance on the circumstances under which such interest is to be capitalized as part of the cost of qualifying assets.

Required:
Discuss the conditions that must be met in order to capitalize borrowing costs under IAS 23, setting out when capitalization of the borrowing costs should commence, be suspended, or cease.

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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.

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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