Answer GG

 

TUTORIAL ANSWERS MFRS120 GOVERNMENT GRANT AND DISCONTINUED OPERATION

QUESTION 1 a) 1/1/2013

31/12/2013

31/12/2014

Dr Equipment Cr Cash Deferred income

10m 7m 3m

Dr Depreciation exp.(equipment) 2m Cr Accumulated dep. (equipment)

2m

Dr Deferred income Cr Other income

600K

600K

Dr Depreciation exp.(equipment) 2m Cr Accumulated dep. (equipment)

2m

Dr Deferred income Cr Other income

600K

600K

b) Deferred income method

Sweet Berhad Statement of Profit or Loss and Other Comprehensive Income 2013 2014 Expenses Depreciation expense (equipment)

2m

2m

Other Revenue Amortization of deferred income

600k

600k

Sweet Berhad Statement of Financial Position 2013 Fixed Assets Equipment -Accumulated Depreciation(equipment)

10m (2m) 8m

2014 10m (4m) 6m

 

Liabilities Deferred Income Write-off method

2.4m

1.8m

Sweet Berhad Statement of Profit or Loss and Other Comprehensive Income 2013 2014 Expenses Depreciation expense (equipment)

1.4m

Sweet Berhad Statement of Financial Position 2013 Fixed Assets Equipment -Accumulated Depreciation(equipment)

7m (1.4m) 5.6m

1.4m

2014 7m (2.8m) 4.2m

QUESTION 2 Government Grant Related to

Government Grant Related to

Asset

Income

Definition

Grants given to an entity to help acquire/construct non current asset.

Explanation

Including non-monetary grants at fair value, shall be presented in the Statement of Financial Position either by : I.  Setting up the grant as

Normally have their related costs and expenses. Such grants are taken to profit or loss in the same period as the relevant costs or expenses are incurred. If the expenses already incurred, the entity shall record: Dr. Cash Cr. Income If the expenses not incurred, the entity

deferred income OR, Deducting/write off the grant in arriving at the carrying amount of the asset. An entity is given a government grant conditional upon the entity setting up a research station to undertake biotechnology research. In this case, the primary condition is the purchase or construction of the research station while subsidiary condition is that the entity ,must undertake biotechnology research. II. 

Example

shall be record: Dr. Cash Cr. Grants (Deferred Income) Suppose an entity will receive RM100,000 subsidy from the Government if it clears up the pollution in the river near its factory. If the entity incurs RM60,000 in each of the next two years to clear the pollution, then the grant shall be recognised in profit or loss over the next two years to match it with the related cost.

 

  QUESTION 3

Dt

Dt Dt

Equipment 1 800 000 Cr Cash 1 200 000 Deferred income 600 000 Deferred income 100 000 Dr Government grant revenue 100 000 Depreciati on Depreciation 300 000 Cr Accumulated depreciation 300 000

SOFP (Deferred income approach) Equipment 1 800 000 (-) Accumulated Depreciation (300 000) 1 500 000 SOFP (Written-off) Equipment 1 200 000 (-) Accumulated Depreciation (200 000) 1 000000

QUESTION 4

a) Income approach b)

SOFP ( Deferred income) Machine 1 600 000 (-) Accumulated depreciation 197 500 1 402 500 SOFP (Written-off) Machine 760 000 (-) Accumulated depreciation 92 500 667 500

QUESTION 5 a) Deferred income method

Statement of financial position for Majujaya Berhad at March 31, 2013 Financial position at Profit or loss 31.12.2013 RM RM Equipment, at cost 1 200 000 Depreciation per year 240 000  Accumulated  Accumulate d depreciation depreciation (240 000) 000) Net book value

960 000

 

Deferred income  Amortisation per year year  Accumulated  Accumulate d amortisation amortisation Unamortised Unamortise d deferred income Net effect

(250 000) (50 000)

190 000

50 000 (200 000) 760 000

b) Writting-off against asset method Statement of financial position for Majujaya Berhad at March 31, 2013 Financial position at Profit or loss 31.12.2013 RM RM Equipment, at cost 950 000 (RM1 200 000 - RM250 000) Depreciation per year (RM950K ÷ 5 years) 190 000  Accumulated  Accumulate d depreciation depreciation (190 000) 000) Net amount 190 000 760 000

c) Two categories of Government Grants in accordance with MFRS120 Accounting for Government Grant and Disclosure of Government Assistance. Grants related to Income -  Government grants that normally have their related costs and expenses. -  Such grants are taken to profit or loss in the same period as the relevant costs or expenses are incurred. -  A government grant which is in the form of an immediate financial support and has no further related costs to be incurred shall be recognised in profit or loss in the period when the entity qualifies to receive it. Grants related to Assets -  Entity qualifying for them should purchase or construct or otherwise acquire long-term assets. -  It shall similarly similarl y be allocated systemically to profit or loss over the period to match it with the related depreciation cost of the asset. -  It shall be presented in the in the SOFP either: - by setting up the grant as deferred income. - by deducting the grant in arriving at the carrying amount of the asset.

 

QUESTION 6

a)

2013 1-Jan

RM 1.8M

Equipment Cash

RM 1.2M

Deferred Income

RM 600K RM 360K

31-Dec Depreciation  Accumulated Depreciation Depreciation Deferred Income Government Income

RM 360K RM 120K RM 120K

Statement of Profit or Loss Revenue Government Grant Income Expenses

RM 120K

Depreciation

RM 360K Statement of Financial Position

Non-Current Assets Equipment (-) Accumulated Depreciation Liabilities Deferred Income (600120)

b)

RM 1.8M RM 360K

RM 480K

Other method that can be used by Delima Berhad in presenting the government grant received: 1) write off 2) reducing cost

QUESTION 7

a) Deferred Income Method 01/05/2013

31/12/2013

Dr.

Dr.

Machine Cr.

6.0m Cash Deferred Income

1.0m 5.0m

Depreciation of Machine 1.2m Cr. Accumulated Depreciation Machine 1.2m

 

  Dr.

Deferred Income 1.0m Cr. Amortization of Deferred Income

1.0m

MNO Berhad Statement of Profit or Loss and Other Comprehensive Income 31 st December 2013 Expenses RM Depreciation Depreciati on of Machine 300k Revenue Deferred Income

100k

MNO Berhad Statement of Financial Position 31st December 2013 Non Current Asset  RM Machine 6.0m ( - ) Depreciation of Machine 1.2m 4.8m Liabilities Deferred Income

4.8m

b) Write Off Method 01/05/2013

Dr.

Machine Government Grant Cr. Cash

1.0m 5.0m 6.0m

MNO Berhad Statement of Profit or Loss and Other Comprehensive Income 31 st December 2013 Expenses RM Depreciation Depreciati on of Machine

200k

 

  MNO Berhad Statement of Financial Position 31st December 2013 Non Current Asset  RM Machine 1.0m ( - ) Depreciation of Machine 200k 800k c)

Deferred Income method shows bigger value of assets and will clearly clear ly reported the actual amount of assets. While Write Off method will make the value of assets appear smaller in statement of financial position and it does not reflect the real value of the asset. In the statement of profit or loss and other comprehensive compr ehensive income shows a higher expense using deferred income method and lower amount of expense using write off but both of them will result in the same amount of net expenses which is RM 200,000.

QUESTION 8

Holly Berhad received government grant related to asset. The account treatment shall be presented in the balance sheet either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying of the asset and in which case, additional information similar to setting up the grand as deferred income a reconciliation of depreciation before and after deduction of related government grant shall and be disclosed. Holly Berhad should make budget cost for example cost labour and cost overhead and Holly Berhad also should make agreement with contractor so that the hotels built should not cost less than RM400 Million.

QUESTION 9

Yet to income DR Grant receivable 120k CR Deferred income 120k Expense to be incurred DR Expenses 250k CR Cash 130k Other revenue

120k

QUESTION 10

a) Expenses have been incurred DR expenses 1000 CR Cash Other Income

900 100

Expenses have yet to incurred DR Grant receive 100 (10%x1000) CR GG Income 100 b) DR

Equipment

10M

 

 

CR

Cash Deferred Income

31/12/16 DR Deferred Income CR GG Income DR

600K 600K

Depreciate 2M CR Acc Depreciate

31/12/17 DR Deferred Income CR GG Income DR

2M

600K 600K

Depreciate 2M CR Acc Depreciate

31/12/18 DR Deferred Income CR GG Income

600K

DR

2M

Depreciate CR

2M

600K

Acc Depreciate

31/12/18 (Repayment) DR Deferred Income Expenses CR GG Income DR

7M 3M

2M

1.2M 300K

Depreciate 2M CR Acc Depreciate

1.5M

2M