Due to the current climate issue, the government of Zambia has just declared that it would provide farmers with financial aid to acquire ploughing machinery. However, there are requirements for selecting the eligible farmers. Farmers from ZNFU are contemplating applying for the grant. However, they have already set aside monies for the machine's acquisition. The overall cost of the machine is $1,200,370. ZNFU Group has $900,000 in the bank. The useful life of the machine is estimated to be 10 years and the policy is depreciated using diminishing balance at 10%.

If ZNFU qualifies, how will they recognize the grant in their books over the 2 years of its useful life? (10 marks)

Let's say ZNFU Group chooses to construct an office and shop with the money they have, which would cost the same as the machine above, and borrows the remainder from the bank at 7% interest over two years. The money is invested at 5% per year six months before construction starts. How would it be shown in the first year's financial statements? (10 marks)