lOMoARcPSD|10472869 FAR-5 - Enjoy Accountancy (Ateneo de Davao University) Studocu is not sponsored or endorsed by any college or university Downloaded by Kawaii Sevenn (kawaiisevenn@gmail.com) lOMoARcPSD|10472869 LA SALLE UNIVERSITY COLLEGE OF BUSINESS AND ACCOUNTANCY First Semester of A.Y. 2018-2019 INTEGRATED ENHANCEMENT COURSE FOR ACCOUNTANCY FAR: Financial Accounting and Reporting by Lowelle C. Pacot, CPA, MMA MULTIPLE CHOICE 1. 2. Government grants are recognized only when there is reasonable assurance that the entity a. Will comply with the conditions attaching to them b. The grants are received c. The grants will be received d. a and b e. a and c 3. According to PAS 20 Accounting for Government Grants and Disclosure of Government Assistance, which of the following is a government grant? a. Tax benefits b. Free technical or marketing advice c. Public improvements that benefit the entire community d. Provision of guarantees e. Noninterest-bearing loan from the government 4. According to PAS 20 Accounting for Government Grants and Disclosure of Government Assistance, which of the following is not a government grant? a. Aid from the government to compensate for casualty losses already incurred. b. Cash received from the government to be used to acquire land. c. Government procurement policy that is responsible for a portion of the entity’s sales. d. Aid from the government to defray expenses which are yet to be incurred. 5. 6. According to PAS 20 Accounting for Government Grants and Disclosure of Government Assistance, non-monetary grants are measured at a. Fair value b. Nominal amount c. Cost d. a or b Government grant related to depreciable asset is usually recognized as income a. Immediately b. Over the useful life of the asset using straight – line method c. Over the useful life of the asset using the sum – of – the – years digits d. Over the useful life of the asset and in proportion to the depreciation of the asset 7. If a government grant related to a biological asset is conditional on certain events, the grant shall be recognized as a. A deferred credit when the grant is approved b. A deferred credit when the conditions attached to the government grant are met c. Income when the grant has been approved d. Income when the conditions attaching to the grant are met 8. Repayment of government grants are accounted for a. b. c. d. 9. Prospectively Retrospectively a or b Not accounted for In relation to a benefit included in the term ‘government assistance’, are the following statements true or false according to PAS 20 Government grants and government assistance? I. The provision of infrastructure in developing areas is a benefit. II. The imposition of trading constraint on competitors is a benefit. a. Neither of the statements are true. b. Only the second statement is true. c. Only the first statement is true. d. Both statements are true. 10. On 1 January 2017 The Bro Company commenced trading to provide key skills education facilities in a region identified for technology development. Also on 1 January 2017, the company received two grants from its government for setting up its operations in this location: Grant (a) – was paid to give financial assistance for start-up costs already incurred. Grant (b) – was paid to subsidize the costs of purchasing computer software over the five-year period. The company is almost certain to keep the facilities operational for the next five years. The company’s accounting year end is 31 December. Are the following statements concerning recognition of the income from the two government grants true or false, according to PAS 20 Government grants and government assistance. (1) Income from Grant (a) should be recognized in full on receipt in 2017. (2) Income from Grant (b) should be recognized in full at the end of 5 years. a. b. c. d. Statement (1) False False True True Statement (2) False True False True 11. Which of the following statements are correct according to PAS 20 Government grants and government assistance? I. Any adjustment needed when a government grant becomes repayable is accounted for as a change in accounting estimate. II. In respect of loans from the government at an interest rate of 0%, an imputed interest charge should be made in profit or loss. III. Where conditions apply to a government grant, it should only be recognized when there is reasonable assurance that the conditions will be met. IV. A government grant should not be recognized until it is received in cash. FAR 5.2: GOVERNMENT GRANTS Page 1 of 3 Downloaded by Kawaii Sevenn (kawaiisevenn@gmail.com) lOMoARcPSD|10472869 a. b. c. d. I, III I, II, III I, III, IV I, II, III, IV c. d. 12. Which of these disclosures is not required by IAS 20? a. The accounting policy adopted by government grants, including methods of presentation adopted in the financial statements. b. Unfulfilled conditions and other contingencies attaching to government assistance. c. The names of the government agencies that gave the grants along with the dates of sanction of the grants by these government agencies and the dates when cash was received in case of monetary grants. d. The nature and extent of government grants recognized in the financial statements and an indication of other forms of government assistance from which the entity has directly benefited. 13. Which of the following is not specifically excluded from the purview of PAS 20? a. Government participation in ownership of the entity. b. Government grant covered by PAS 41. c. Government assistance provided in the form of tax benefits. d. Forgivable loan from the government. 14. Which of the following is within the scope of PAS 20? a. Government assistance provided in the form of tax benefits. b. Free technical or marketing advice c. Forgivable loan from the government d. Public improvements that benefit the entire community 15. In the case of a nonmonetary grant, which of the following accounting treatments is prescribed by PAS 20? a. Record the asset at replacement cost and the grant at a nominal value b. Record the grant at a value estimated by management c. Record both the grant and the asset at fair value of the nonmonetary asset d. Record only the asset at fair value; do not recognize the fair value of the grant 16. In the case of grants related to asset, which of these accounting treatments (balance sheet presentation) is prescribed by PAS 20? a. Record the grant at a nominal value in the first year and write it off in the subsequent year. b. Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the asset c. Record the grant at fair value in the first year and take it to income in the subsequent year d. Take it to the income statement and disclose it as an extraordinary gain 17. In the case of grants related to income, which of these accounting treatments is prescribed by PAS 20? a. Credit the grant to “general reserve” under shareholders’ equity. b. Present the grant in the income statement as “other income” or as a separate line item, or deduct it from the related expense. Credit the grant to “retained earnings” on the balance sheet. Credit the grant to sales or other revenue from operations in the income statement. Use the following information to answer the next four questions: On January 1, 2016, Tesla Co. received ₱2,000,000 grant from the government to aid the construction of a new building. The construction of the building was finished on March 31, 2017 for a total cost of ₱6,000,000. The building is estimated to have a useful life of 30 years and a residual value of ₱1,000,000. 18. If Tesla Co. uses the gross presentation, how much is the income from the government grant in 2016? a. ₱0 (whether gross or net) b. ₱66,667 c. ₱2,000,000 d. ₱6,000,000 19. If Tesla Co. uses the gross presentation, how much is the carrying amount of the building on December 31, 2017? a. ₱0 b. ₱3,925,000 if net presentation c. ₱5,875,000 d. ₱6,000,000 20. If Tesla Co. uses the gross presentation, how much is the income from the government grant in 2017? a. ₱0 if net presentation b. ₱50,000 c. ₱2,000,000 d. ₱6,000,000 21. If Tesla Co. uses the gross presentation, how much is the depreciation expense in 2017? a. ₱0 b. ₱75,000 if net presentation c. ₱125,000 d. ₱166,667 22. If Tesla Co. uses the gross presentation, how much is the balance of the deferred income from government grant on December 31, 2017? a. ₱0 if net presentation b. ₱50,000 c. ₱1,950,000 d. ₱2,000,000 23. The Cuanza Company purchased a major new piece of machinery for ₱10 million on January 1, 2017. It will depreciate this machinery on a straight line basis over its useful life of 10 years, assuming a zero residual value. Also on 1 January 2017 the company received a government grant of ₱1 million to help finance this machinery. According to PAS 20 Government grants and government assistance, which, if either, of the following would be an acceptable treatment of this machinery and the related government grant in the company’s statement of financial position at 31 December 2017? Method 1 Non-current asset Cost ₱9,000,000 Depreciation 900,000 Carrying amount 8,100,000 FAR 5.2: GOVERNMENT GRANTS Page 2 of 3 Downloaded by Kawaii Sevenn (kawaiisevenn@gmail.com) lOMoARcPSD|10472869 Method 2 Non-current asset Cost ₱10,000,000 Depreciation 1,000,000 Carrying amount 9,000,000 Deferred income 900,000 a. b. c. d. Use the following information to answer the next two questions: On January 2, 2018, Kelly Company received a grant related to a factory building. The total amount of the grant was ₱18,000,000. Kelly Company acquired the building from an industrialist identified by the government. If Kelly Company did not purchase the factory building, which was located in the slums of the city; it would have been repossessed by a government agency. Kelly Company purchased the building for ₱54,000,000. The useful life of the building is not considered to be more than three years, mainly due to the fact that the previous owner did not properly maintain it. Method 1 only Method 2 only Neither method Method 1 or Method 2 24. The Stealth Company purchased a varnishing machine for ₱150,000 on 1 January 2016. The company received a government grant of ₱13,500 in respect to the asset. Company policy was to depreciate the asset over 4 years on a straight-line basis and to treat the grant as deferred income. Under PAS 20 Government grants and government assistance, what should be the carrying amounts of the machine and the deferred income (“DI”) balance at 31 December 2017? Carrying amount DI balance a. ₱75,000 ₱6,750 b. ₱112,500 ₱10,125 c. ₱81,750 ₱6,750 d. ₱75,000 ₱13,500 27. Assuming that the grant is treated as a reduction of the gross carrying amount of the asset, what is the carrying value of the building in the December 31, 2018 statement of financial position? a. ₱18,000,000 c. ₱36,000,000 b. ₱24,000,000 d. ₱54,000,000 28. Assuming that the grant is treated as a deferred income initially, what is the carrying value of building in the December 31, 2018, statement of financial position? a. ₱18,000,000 c. ₱36,000,000 b. ₱24,000,000 d. ₱54,000,000 Use the following information to answer the next two questions: Marxian Company participates in a ‘cap and trade’ for emission rights and is allocated on January 2, 2018, free of charge, allowances of 10,000 tonnes of carbon dioxide during the calendar year 2018. The market price of an allowance (equivalent to one tone of carbon dioxide) on January 2, 2018 is ₱20 giving a fair value of ₱200,000. On June 30, 2018, the company has emitted 6,000 tonnes of carbon dioxide and expects its emissions for a full year to be 12,500 tonnes. The market price for allowances has risen to ₱22 per tonne. On December 31, 2018 the company has emitted 12,500 tonnes and market price of allowances is ₱24 per tonne. 25. The Lightning Company purchased a jewel polishing machine for ₱360,000 on January 1, 2017 and received a government grant of ₱50,000 towards the capital cost. Company policy is to treat the grant as a reduction in the cost of the asset. The machine was to be depreciated on a straight-line basis over 8 years and was estimated to have a residual value of ₱5,000 at the end of this period. Under PAS 20 Government grants and government assistance, what should be the depreciation expense in respect of the machine for the year ended December 31, 2017? a. ₱38,750 c. ₱76,250 b. ₱44,375 d. ₱38,125 26. On January 1, 2016, the Thunder Company purchased a plating machine costing ₱135,000. Thunder received a grant of ₱13,500 towards the capital cost. Company policy is to treat the grant as a reduction in the cost of the asset. Under PAS 20 Government grants and government assistance, what should be the depreciation expense in respect of this machine for the year ended December 31, 2017, assuming that depreciation is calculated on a 20% reducing balance basis? a. ₱27,000 c. ₱24,300 b. ₱19,440 d. ₱22,140 The company uses the fair value model to account for the allowances. 29. What amount of deferred income should the company recognize on January 2, 2018? a. None c. ₱200,000 b. ₱132,000 d. ₱220,000 30. What amount of realized income should the company recognize on June 30, 2018 based on the actual tonnes of carbon dioxide emitted? a. None c. ₱132,000 b. ₱96,000 d. ₱200,000 SUGGESTED ANSWERS: 1. 2. 3. D D C 4. 5. 6. D D D 7. 8. 9. A A C 10. A 11. C 12. D 13. C 14. C 15. B 16. B 17. A 18. C 19. B 20. C 21. C FAR 5.2: GOVERNMENT GRANTS 22. D 23. A 24. D 25. B 26. B 27. C 28. C 29. B Page 3 of 3 Downloaded by Kawaii Sevenn (kawaiisevenn@gmail.com)
