1.Government grants are recognized only when there 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

2. According to PAS 20 Accounting for Government Grants 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

3. 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.

4. 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

5. The repayment of government grants are accounted for

a. prospectively.

b. retrospectively.

c. a or b

d. not accounted for

6. 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?

1) The provision of infrastructure in developing areas is a of trading constraints on competitors is a

benefit.

2) The imposition of trading constraints on competitors is a benefit.

Statement 1 Statement 2

a. false false

b. false true

c. true false

d. true true

7. On 1 January 20X8 The Ebro Company commenced trading to provide key skills education facilities in a region identified for technology development. Also on 1 January 20X8, 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 cos 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 receipt in 20X8.

2) Income from Grant (b) should be recognized in full at the end of 5 years.

Statement 1 Statement 2

a. false false

b. false true

c. true false

d. true true

8.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

a. I, III

b. I, II, III

c. I, III, IV

d. I, II, III, IV

9.Which of these disclosures is not required by IAS 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.

10. 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.

COMPUTATIONAL

1.The Cuanza Company purchased a major new piece of machinery for P10 million on 1 January 20X8. 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 20X8 the company received a government grant of P1 million to help finance this machinery.

According to PAS 20 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 31 December 20X8?

Method 1 Method 2

Non-current asset Non-current asset

cost 9,000,000 cost 10,000,000

depreciation 900,000 depreciation 1,000,000

carrying amount 8,100,000 carrying amount 9,000,000

deferred income 900,000

a. Method 1 only

b. Method 2 only

c. Neither method

d. Method 1 or Method 2

2. The Palila Company purchased a varnishing machine for P150,000 on 1 January 20X7.

The company received a government grant of P13,500 in respect of this 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 20X8?

Carrying amount DI balance

a. 75,000 6,750

b. 112,500 10,125

c. 81,750 6,750

d. 75,000 31,500

3.The Perch Company purchased a jewel polishing machine for P360,000 on 1 January 20X7 and received a government grant of P50,000 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 P5,000 at the end of and government this period. Under PAS 20 Government grants assistance, what should be the depreciation expense in respect of the machine for the year ended 31 December 20X7?

a. P38,750

b. P76,250

c. P44,375

d. P38,125

4.On 1 January 20X7 The Goodwin Company purchased a plating machine costing P135,000. Goodwin received a grant of P13,500 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 i machine for the year ended 31 December 20X8, assuming that respect of this depreciation is calculated on a 20% reducing balance basis?

a. P27,000

b. P24,300

c. P19,440

d. P22,140