Government Grants Flashcards
PAS 20 applies to which of the following?
a. accounting for government grants under hyperinflationary economies
b. tax benefits such as income tax holidays, investment tax credits, accelerated depreciation allowances and reduced income tax rates
c. government participation in the ownership of the entity
d. government grants related to biological assets measured at fair value less costs to sell.
e. The benefit of a government loan at a below-market rate of interest.
E
Under PAS 20, it is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. It does not include benefits provided only indirectly through action affecting general trading conditions, such as the provision of infrastructure in development areas or the imposition of trading constraints on competitors.
a. Government assistance
b. Government grants
c. Grants related to assets
d. Grants related to income
A
Under PAS 20, these are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.
a. Government assistance
b. Government grants
c. Grants related to assets
d. Grants related to income
B
Which of the following is not a term used as substitute for government grants?
a. subsidies
b. subventions
c. premiums
d. income tax holiday
D
Which of the following may not form a valid basis for the accounting for government grants?
a. cost principle
b. matching
c. full disclosure
d. comparability
A
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.
D
Which of the following statements incorrectly relate to the scope of PAS 20?
a. PAS 20 shall be applied in accounting for, and in the disclosure of, government grants and in the disclosure of other forms of government assistance.
b. PAS 20 shall be applied in accounting for, and in the disclosure of, government grants and other forms of government assistance.
c. PAS 20 does not deal with the special problems arising in the accounting for government grants in financial statements reflecting the effects of changing prices or in supplementary information of a similar nature.
d. PAS 20 does not deal with government assistance that is provided for an entity in the form of benefits that are available in determining taxable profit or tax loss, or are determined or limited on the basis of income tax liability. Examples of such benefits are income tax holidays, investment tax credits, accelerated depreciation allowances and reduced income tax rates.
e. PAS 20 does not deal with government participation in the ownership of the entity and government grants covered by PAS 41 Agriculture.
B
When shall an entity recognize government grants?
a. when there is reasonable assurance that the entity will comply with the conditions attaching to grants
b. when the grants are received
c. when there is reasonable assurance that the grants will be received
d. a and c
D
In relation to the accounting for government grants, which of the following is true?
a. The receipt of a grant is of itself provides conclusive evidence that the conditions attaching to the grant have been or will be fulfilled.
b. Government assistance that qualify as government grants are disclosed but not accounted for under PAS 20.
c. Government assistance that do not qualify as government grants are accounted for and disclosed under PAS 20.
d. Government grants, including non-monetary grants at fair value, shall not be recognized until there is reasonable assurance that the entity will comply with the conditions attaching to them and the grants will be received
D
Which of the following are considered characteristics of a recognized government grant?
I. An economic benefit received from the government
II. Direct benefits is specific to the recipient entity
III. With measurable value
IV. Received or receivable in return for past or future compliance with attached condition
V. There is reasonable assurance that the recipient entity will comply to the attached conditions and that the grant will be received.
VI. Direct recognition in equity.
a. I, II, III
b. I, II, III, IV
c. I, II, III, IV, V
d. all of these
C
Under PAS 20, this refers to government, government agencies and similar bodies whether local, national or international.
a. Government
b. Regulatory agencies
c. Internal Revenue Services
d. Securities Commission
A
Under PAS 20, these are government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.
a. Government assistance
b. Government grants
c. Grants related to assets
d. Grants related to income
C
Under PAS 20, these are government grants other than those related to assets.
a. Government assistance
b. Government grants
c. Grants related to assets
d. Grants related to income
D
Which of the following is a government grant related to asset?
a. Cash received to defray costs already incurred by an entity.
b. Financial aid received from the government to compensate for casualty losses incurred
c. Cash received to aid an entity in its “clean and green” program
d. Land received from government with the condition that a building should be constructed on it.
D
Which of the following is a government grant related to income?
a. Cash received from the government to be used in acquiring equipment.
b. Land received from government with the condition that a building should be constructed on it.
c. Marketing advice received from a government agency.
d. Financial aid received from the government to compensate for casualty losses incurred
D
Monetary grants are measured at the
a. amount of cash received
b. the fair value of amount receivable
c. carrying amount of loan payable to government for which repayment is forgiven
d. discount on loan payable to government at a below-market rate of interest.
e. any of these
E
Non-monetary grants are measured at the
a. fair value of non-monetary asset received
b. at nominal amount or zero, plus direct costs incurred in preparing the asset for its intended use
c. amount of cash received
d. a or b
D
A donated fixed asset received as government grant for which the fair value has been determined should be recorded as a debit to fixed asset and a credit to
a. retained earnings
b. additional paid-in capital
c. deferred income
d. other income
C
Under PAS 20, these are loans which the lender undertakes to waive repayment of under certain prescribed conditions.
a. Non-derivative financial assets with fixed or determinable payments
b. Waivable loans
c. Agricultural loans
d. Forgivable loans
D
A forgivable loan from government is treated as a government grant when
a. there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.
b. the loan is forgiven
c. there is reasonable assurance that the loan will not be repaid in the future
d. under no circumstance
A
The benefit of a below-market rate of interest loan from the government is measured
a. as the fair value of the loan at date of grant
b. as the amount needed to settle the liability at maturity
c. as the difference between the initial carrying amount of the loan determined in accordance with PFRS 9 and the proceeds received.
d. as the difference between the initial carrying amount of the loan determined in accordance with PFRS 9 and the present value of the loan.
C
Which approach is used to account for government grants?
a. Capital approach
b. Romantic approach
c. Gentle approach
d. Income approach
D
Which of the following is correct regarding the recognition of government grants?
a. Government grants shall be recognized in equity on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate.
b. Government grants shall be recognized in profit or loss immediately on grant date.
c. Government grants shall be recognized in profit or loss on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate.
d. Government grants shall be recognized immediately in equity on grant date.
C
Which of the following is the least desirable accounting procedure for government grants?
a. Government grants are recognized immediately in profit or loss if the related costs for which the grants are intended to compensate have already been incurred.
b. Government grants are initially deferred if the related costs for which the grants are intended to compensate are not yet incurred.
c. Government grants are not immediately recognized in profit or loss but rather amortized to profit or loss as the costs for which the grants are intended to compensate are being incurred.
d. Government grants are recognized in profit or loss on a receipts basis.
D
Which of the following is not applied when accounting for government grants?
a. matching
b. accrual accounting
c. cash basis accounting
d. income recognition
C
The use of cash basis of accounting to account for government grants is permitted
a. only if no basis existed for allocating a grant to periods other than the one in which it was received.
b. only if there is no reasonable assurance that the entity will comply with the conditions attached to the grant.
c. only if, at initial recognition, there is no reasonable basis that the grant will be received
d. under no circumstance
A
Which of the following is an acceptable accounting procedure for government grants?
I. Income from government grant is recognized in the period the costs or expenses related to the government grant are recognized.
II. Grants related to depreciable assets are usually recognized in profit or loss over the periods and in the proportions in which depreciation expense on those assets is recognized.
III. Grants related to non-depreciable assets are recognized in profit or loss as depreciation expense is recognized on a related depreciable asset for which the grant was received.
IV. A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognized in profit or loss in the period in which it becomes receivable.
V. Grants in the form of tax benefits are recognized in profit or loss when the related deferred tax liability reverses.
a. I, II
b. II, III, IV
c. I, II, III, IV
d. I, II, III, IV, V
C
Which of the following grants shall be recognized in profit or loss immediately?
a. The government makes a grant to a start-up entity writing teaching software for children with learning difficulties. The purpose of the grant is to help with general financing on start up, and there are no further conditions attaching to the grant.
b. The area where an entity operates was struck by a super-typhoon. Various properties were destroyed. Accordingly, the entity received ₱10M as financial aid.
c. A manufacturing entity sets up a plant in an area of high unemployment. A grant of ₱4 million is receivable if it continues to employ at least 100 people over a period of four years. It is highly probable it will do so. ₱2 million of the grant is to be received immediately and a further ₱2 million is receivable in four years’ time.
d. a and b
D
Which of the following grants shall be recognized in profit or loss periodically as the related costs are incurred?
a. An agricultural research entity is given land that belonged to the government to set up a new laboratory and to investigate new farming methods.
b. Free technical advice is provided by the government to help an export entity to market its new technology in North America.
c. A local government made public improvements in the area where an entity operates. The public improvements increased business in the area since it became more accessible to customers. Also, the value of land in the area increased.
d. An entity operating in an economic zone was awarded a tax holiday of 5 years in the condition that the entity should continue to operate for at least 10 years and that it should employ only residents from the area.
A
In relation to a benefit included in the term ‘government assistance’, are the following statements true or false according to PAS20 Government grants andgovernment assistance?
I. The provision of infrastructure in developing areas is a benefit.
II. The imposition of trading constraints on competitors is a benefit.
a. False, False
b. False, True
c. True, False
d. True, True
A
PAS 20 shall be applied in accounting for, and in the disclosure of, government grants and in the disclosure of other forms of government assistance. 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.
C
An unrestricted grant received from the government to support enterprise fund operations should be reported as
a. Contributed capital.
b. Income.
c. Revenue
d. Revenues and expenditures.
B
To induce MONARCHY “KING, QUEEN, OR EMPEROR” Co. to do business in Baguio City, the City government donated a factory site to the company. The donation may be reflected in the books of Monarchy at
a. cost of titling the site
b. nominal value
c. current market value
d. either a, b or c
D
ARISTOCRACY County owned an idle parcel of real estate consisting of land and a factory building. Aristocracy gave title to this realty to ARISTOCRAT Co. as an incentive for Aristocrat to establish manufacturing operations in the County. Aristocrat paid nothing for this realty, which had a fair market value of ₱250,000 at the date of the grant. Aristocrat should record this nonmonetary transaction as a
a. memo entry only.
b. credit to deferred income for ₱250,000.
c. credit to income for ₱250,000.
d. credit to donated capital for ₱250,000.
B
A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturer’s books at
a. the nominal cost of taking title to it.
b. its market value.
c. “b” but alternatively, the entity may use “a”
d. not recorded
C
An entity donated land to a municipality for a park. The acquisition cost of the land was ₱75,000, and the revalued carrying amount at the time of the donation was ₱200,000 as determined by a professional appraiser. If the enterprise has adopted the allowed alternative treatment for measurement of property, plant, and equipment subsequent to initial recognition, the journal entry to record the disposition of the land is
a. Land 75K
Deferred income 75K
b. Land 125K
Revaluation surplus 125K
Revaluation surplus 125K
Income 125K
Expense 75K
Land 75K
c. Expense 200K
Revaluation surplus 125K
Land 200K
Retained earnings 125K
d. Donation expense 200K
Land. 75K
Income. 125K
C
On January 1, 20x1, DEMOCRACY “RULE BY THE PEOPLE” Company commenced trading to provide key skills education facilities in a region identified for technology development. Also on January 1, 20x1, 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 December 31. Are the following statements concerning recognition of the income from the two government grants true or false, according to PAS 20 Government grants and governmentassistance?
(1) Income from Grant (a) should be recognized in full on receipt in 20x1.
(2) Income from Grant (b) should be recognized in full at the end of 5 years.
a. False, False
b. False, True
c. True, False
d. True, True
C
REPUBLIC “PEOPLE ELECT” Company purchased a major new piece of machinery for ₱10 million on January 1, 20x1. It will depreciate this machinery on a straight line basis over its useful life of 10 years, assuming a zero residual value. Also on January 1, 20x1 the company received a government grant of ₱1 million to help finance this machinery.
According to PAS20 Government grants and government assistance, which, if either, of the following methods would be an acceptable treatment of this machinery and the related government grant in the company’s statement of financial position at December 31, 20x1?
Method 1
Non-current asset
Cost 9M
Depreciation 900K
Carrying Amount 8,100,000
Deferred Income 900K
Method 2
Non-current asset
Cost 10M
Depreciation 1M
Carrying Amount 9M
a. Method 1 only
b. Method 2 only
c. Neither method
d. Method 1 or Method 2
D
In the case of grants related to an 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
B
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.
c. Credit the grant to “retained earnings” on the balance sheet.
d. Credit the grant to sales or other revenue from operations in the income statement.
B
Which of the following statements are correct according to PAS20 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 interest charge should be made periodically 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
a. I, III
b. I, II, III
c. I, III, IV
d. I, II, III, IV
B
Which of the following statements is true?
a. A donated machinery equipment for which the fair value has been determined and for which installation costs were incurred should be measured at its carrying amount on the books of the donee plus installation cost incurred.
b. Donations of property, plant and equipment received from shareholders should be recorded at the fair value of the donated asset.
c. A donated fixed asset received as government grant and for which the fair value has been determined should be recorded as a debit to fixed asset and credit to other income.
d. A government grant that becomes repayable is accounted for retrospectively.
B
Which of these disclosures is not required by PAS 20?
a. The accounting policy adopted for 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.
C
