On 1 May 2018, Gemira Bhd is awarded a license by government to conserve wild resources located at Kuala Tahan, Pahang for a 10-year concession at a nominal cost of RM50,000. Based on the discounted cash flow method, the fair value of the license is assessed at RM2,000,000. The grant was awarded on the basis that Gemira Bhd is actively involved in activities to manage, care and protect the wildlife so that these resources still exist for future generations.

Gemira Bhd owned a 15-storey building in Kuala Tahan, Pahang with a useful life of 50 years at the costs of RM10,000,000. The building was leased out to third parties except for one floor that are used for administrative purposes. The building cannot be sold separately. Gemira Bhd may use an internal policy to apply a 10% floor space rule.

1. Discuss the measurement of the licensed received by the government.

a)The license received can only be measured at RM2,000,000 since the fair value can be measured reliably using the discounted cash flow method.

b)The license received can be measured either at the fair value or at nominal amount plus any expenditure directly attributable to preparing the asset for its intended use.

c)The license received cannot be measured at the fair value since the exchange lack of commercial substance and difficult to measure reliably.

d)The license received can only be measured based on the nominal costs of RM50,000 that have been paid to the government.

ANSWER:

2. Determine which of the following accounting treatment istrue.

i.The license is a non-monetary government grant transferred to Gemira Bhd on the assurance that Gemira Bhd will comply with the condition attached to the grant.

ii.The license can be recognised as an intangible asset at the fair value of RM2,000,000. RM1,950,000 will be credited to deferred income and subsequently amortised systematically over the 20-year period.

iii.The license can be recognised as an intangible asset at a nominal value of RM50,000. Government grant will not be recognised as the benefits are received indirectly.

iv.The license can be recognised as an intangible asset at the value of RM1,950,000 after taking into account of the nominal costs paid to the government.

a)i only

b)i and iii

c)i and iv

d)i, ii and iii

ANSWER:

3.On 1 May 2019, Gemira Bhd no longer comply to the condition attached to the grant and was required to pay RM10,000 to the government. Identify the accounting treatment that isnot applicablefor the grant.

a)The grant payable shall be accounted for change in accounting estimate.

b)If the grant had been credited to the deferred income, the repayment shall be set off against the unamortised deferred income.

c)Gemira Bhd need to debit deferred income account at RM1,755,000.

d)Total amount of loss is RM10,000.

ANSWER:

4. Identify argument to support income approach in recognizing grants received from the government.

a)Company can only earn government grant by compliance with the conditions attached to the grant. Any earned income should be match with the costs.

b)Grants should be seen as financing devices to support the business activity.

c)Grants are incentives to the business without related costs.

d)Grants are viewed as synonymous with transactions between the company and its owner.

ANSWER:

5. Classify the 15-storey building in Kuala Tahan based on relevantMalaysian Financial Reporting Standard.

a)The entire building shall be classified as property, plant and equipment based on MFRS116.

b)The entire building shall be classified as an investment property based on MFRS140.

c)The one floor shall be recognised as property, plant and equipment based on MFRS116 and the remaining floor shall be recognized as an investment property based on MFRS140.

d)The entire building shall be classified as leased property based on MFRS16.

ANSWER: