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Test 6

The document contains two questions related to financial accounting and reporting under IAS 20, focusing on government grants received by Masoom Limited and Punjab Power Limited. It outlines the conditions of the grants, the proposed treatment of grant income, and the required journal entries for different accounting treatments. The questions emphasize the implications of grant conditions and repayment obligations on financial statements.

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2 views1 page

Test 6

The document contains two questions related to financial accounting and reporting under IAS 20, focusing on government grants received by Masoom Limited and Punjab Power Limited. It outlines the conditions of the grants, the proposed treatment of grant income, and the required journal entries for different accounting treatments. The questions emphasize the implications of grant conditions and repayment obligations on financial statements.

Uploaded by

arehmanh871
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial accounting and reporting I

Test 6 – IAS 20

Question 1
On January 1, 2020, Masoom Limited (ML) received a government grant of Rs. 80 million towards the purchase of new
plant with a gross cost of Rs. 640 million. The plant has an estimated life of 10 years and is depreciated on a straight-line
basis.
One of the terms of the grant is that the sale of the plant before December 31, 2023 would trigger a repayment on a
sliding scale as follows:

Sale in the year ended: Repayment:


December 31, 2020 100%
December 31, 2021 75%
December 31, 2022 50%
December 31, 2023 25%

Accordingly, the directors propose to credit to the statement of profit or loss Rs. 20 million (Rs. 80 million x 1/4) being the
amount of the grant income they believe has been earned in the year to December 31, 2020 as 1 year out of restriction
has passed. ML accounts for government grants as a separate item of deferred credit in its statement of financial
position. ML has no intention of selling the plant before the end of its economic life.
Required:
Prepare extracts of SOFP and SOCI for the year ending December 31, 2020. Also comment on director’s proposed
treatment of grant income for the year. (4)

Question 2
On January 1, 2018 Punjab Power Limited (PPL) received a grant of Rs. 240 million from Government of Punjab towards
the purchase of power plant in Multan. The plant was purchased for Rs. 350 million and Rs. 10 million were incurred on
installation. The installation was completed on April 1, 2018 and plant was available for use. The plant has an estimated
life of 10 years and will be depreciated on straight line basis. One of the secondary conditions of grant is to provide free
accommodation to local workers for atleast four years. On January 1, 2020 a surveyor of relevant government
department found breach of conditions and a notice was issued to PPL for repayment of Rs. 180 million. Repayment is
finally made in two installments; one installment of Rs. 100 million on March 31, 2020 and second installment of Rs. 80
million on June 30, 2020.
Required:
Pass journal entries for the years ending December 31, 2018, 2019 and 2020 if:
(a) Grant is kept separately as deferred income.
(b) Grant is deducted from carrying amount of plant.
(11)

[1]

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