IAS 20 and IAS 40) – NBC Institute

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

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

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

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

CR – Mar 2023 – L3 – Q3a – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40) ,IAS 36: Impairment of Assets,

Discuss the impairment of a printing machine owned by Dajanso Plc, including necessary computations.

Question

Dajanso Plc owns a number of printing shops across the country. On 1 January 2021, the carrying amount of Dajanso’s largest printing machine was GH¢65 million. The machine had a remaining useful life of five years and a residual value of GH¢7 million using the cost model. Due to a fall in demand for printed books, management conducted an impairment review of the printing machine on 30 June 2021.

At this date, the estimated selling price was GH¢55 million, including GH¢4 million, which would be received after reconditioning the asset. Agent fees would be 5% of the appropriate fair price. If the machine is kept in use, it is estimated to generate real cash flows of GH¢20 million a year over its remaining life (now estimated to be three years), with a revised residual value of GH¢6 million. The following discount rates are applicable:

Rate Type	Pre-tax Nominal	Pre-tax Real	Post-tax Nominal	Post-tax Real
Discount Rate (p.a.)	11.9%	8.3%	10.5%	6.6%

Required:
In line with IAS 16 Property, Plant, and Equipment and IAS 36 Impairment of Assets, recommend how Dajanso would account for the plant in its financial statements for the year ended 31 December 2021. Show appropriate computations where necessary.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Equipment, Impairment, Plant, Property, Recoverable Amount, Value in Use
Level: Level 3

Topic: IAS 20 and IAS 40), IAS 36: Impairment of assets
Series: MAR 2023

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

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

CR – Mar 2023 – L3 – Q3a – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40) ,IAS 36: Impairment of Assets,

Discuss the impairment of a printing machine owned by Dajanso Plc, including necessary computations.

Question

Rate Type	Pre-tax Nominal	Pre-tax Real	Post-tax Nominal	Post-tax Real
Discount Rate (p.a.)	11.9%	8.3%	10.5%	6.6%

Answer

Find Related Questions by Tags, levels, etc.

Tags: Equipment, Impairment, Plant, Property, Recoverable Amount, Value in Use
Level: Level 3

Topic: IAS 20 and IAS 40), IAS 36: Impairment of assets
Series: MAR 2023

Topic: IAS 20 and IAS 40)

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

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.

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.

CR – Mar 2023 – L3 – Q3a – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40) ,IAS 36: Impairment of Assets,

Discuss the impairment of a printing machine owned by Dajanso Plc, including necessary computations.

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.

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.

CR – Mar 2023 – L3 – Q3a – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40) ,IAS 36: Impairment of Assets,

Discuss the impairment of a printing machine owned by Dajanso Plc, including necessary computations.

Our offerings

Contact Info

Customer

Get In Touch

Topic: IAS 20 and IAS 40)

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

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"

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 – Mar 2023 – L3 – Q3a – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40) ,IAS 36: Impairment of Assets,

Discuss the impairment of a printing machine owned by Dajanso Plc, including necessary computations.

You're reporting an error for "CR – Mar 2023 – L3 – Q3a – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40) ,IAS 36: Impairment of Assets,"

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"

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 – Mar 2023 – L3 – Q3a – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40) ,IAS 36: Impairment of Assets,

Discuss the impairment of a printing machine owned by Dajanso Plc, including necessary computations.

You're reporting an error for "CR – Mar 2023 – L3 – Q3a – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40) ,IAS 36: Impairment of Assets,"

Our offerings

Contact Info

Customer

Get In Touch

admin