Lolo Trading acquired a plant at a gross cost of RM1.6 million on 1 October 2019. The planthas an estimated economic life of ten years with a residual value equal to 10% of its grosscost. Depreciation is allocated on time basis apportionment. The company receivedgovernment grant of 30% from its cost price during the purchase time. If the company retainsthe plant for five years or more, there will be no repayment liability. If the company sells theplant within one year, it has to repay 75% of the cost. This amount decreases by 20% insucceeding years.

Lolo has no intention of disposing the plant within five years. Its policy for capital-basedgovernment is to treat them as deferred credits and release them to income over the life of theasset to which they relate.

Required:

a) Discuss whether the companys policy for the treatment of government grants meets the definition of a liability in MASB Conceptual Framework.

(6 marks) (CLO2:PLO2:C3)b) Prepare extract of Lolos financial statements for the year ended 30 March 2020 in respectto the plant and grant, applying the companys policy, and in compliance with the definitionof liability in the Conceptual Framework.

(9 marks) (CLO2:PLO2:C4)