Government Assistance

Question 1

What are the 2 types of Govt Grants

Answer 1

grants related to income

grants related to assets

Question 2

What are the 2 criteria for recognizing grants

Answer 2

1. The entity will comply with the conditions attached to the grant; and
2. The grant will be received.

Question 3

How are grants relating to income presented

Answer 3

1. separately as “other income”; or

2. deducted from the related expense (a credit to the expense account)

Question 4

Other income entries

Answer 4

upon receipt
Dr. Cash	$250,000	 
Cr. Deferred government grant	 	$250,000
end of 1st year 
Dr. Employee wages expense	$80,000	 
Cr. Wages payable, cash	 	$80,000
Dr. Deferred government grant	$50,000	 
Cr. Other income — government grant	 	$50,000

Question 5

deducted from the related expense (a credit to the expense account)

Answer 5

Dr. Cash $250,000
Cr. Deferred government grant $250,000

Dr. Employee wages expense $80,000
Cr. Wages payable, cash $80,000
Dr. Deferred government grant $50,000
Cr. Employee wages expense $50,000

Question 6

Grants Related to Assets

Answer 6

as deferred income (a liability), and brought into income over the life of the asset as depreciation is incurred
o In the case of a non-depreciable asset, the grant is likely to carry conditions with it. The grant would be recognized over the period in which those conditions are met.
• deducted from the asset’s carrying amount

Question 7

as deferred income (a liability), and brought into income over the life of the asset as depreciation is incurred

Answer 7

Dr. Production facility $10,000,000
Cr. Cash, payables, and so on $10,000,000
To record the building of the production facility.

February, 20X1

Dr. Cash $2,500,000
Cr. Deferred government grant $2,500,000
To record the receipt of the grant, presented on a gross basis.

 December, 20X1

Dr. Depreciation expense $400,000
Cr. Accumulated depreciation
$10,000,000 / 25 years $400,000
To recognize amortization on the production facility.

Dr. Deferred government grant $100,000
Cr. Other income — government grant or depreciation expense
$2,500,000 / 25 years $100,000
To recognize revenue from the grant over the life of the facility.

Question 8

deducted from the asset’s carrying amount

Answer 8

Dr. Production facility $10,000,000
Cr. Cash, payables, and so on $10,000,000
To record the building of the production facility.

February, 20X1

Dr. Cash $2,500,000
Cr. Production facility $2,500,000
To record the receipt of the grant, and net the amount off of the cost of the facility.

 December, 20X1

Dr. Depreciation expense $300,000
Cr. Accumulated depreciation
($10,000,000 – $2,500,000) / 25 years $300,000
To recognize depreciation on the net amount of the production facility.