Question
PLEASE EXPLAIN EACH QUESTONS QUICKLY!!! Use the following information for the next four questions. Nadine Company received a P1,800,000 subsidy from the government to purchase
PLEASE EXPLAIN EACH QUESTONS
QUICKLY!!!
Use the following information for the next four questions.
Nadine Company received a P1,800,000 subsidy from the
government to purchase manufacturing equipment on
January 2, 2020. The equipment has a cost of P3,000,000,
a useful life a six years, and no salvage value. Nadine
depreciates the equipment on a straight-line basis.
10. If Nadine chooses to account for the grant as deferred
income, the grant income to be recognized in 2020 is
a. Nil c. P 500,000
b. P300,000 d. P1,800,000
11. In the case of grants related to an asset, which of
these accounting treatments (balance sheet
presentation) is prescribed by PAS 20?
a. Record the grant at a nominal value in the first
year and write it off in the subsequent year.
b. Either set up the grant as deferred income or
deduct in arriving at the carrying amount of the
asset.
c. Record the grant at fair value in the first year and
take it to income in the subsequent year.
d. Take it to the statement of comprehensive income
and disclose it as an extraordinary gain.
12. If Nadine chooses to account for the grant as an
adjustment to the asset, the carrying amount of the
asset on the December 31, 2020 statement of financial
position is
a. P1,200,000 c. P2,200,000
b. P1,000,000 d. P2,500,000
13. Which of the following is true regarding the alternative
ways to apply the income approach to accounting of
resources acquired through government grants?
a. Expenses will be higher and net income lower if the
grant is recorded as deferred income.
b. Expenses will be higher and net income lower if the
grant is accounted for as an adjustment to the
asset.
c. Depreciation expense will be higher if the grant is
recorded as an adjustment to the asset, but net
income will be the same under the two
alternatives.
d. Depreciation expense will be higher if the grant is
recorded as deferred income, but net income will
be the same under the two alternatives.
Use the following information for the next three questions.
On January 1, 2019, Citimart Inc. was granted land in a
village, located near the slums outside the city limits, by a
local government authority. The condition attached to this
grant was that the company should clean up this land and
lay roads by employing laborers from the village in which
the land is located. The government has fixed the
minimum wage payable to the workers. The entire
operation will take three years and is initially estimated to
cost P160 million. The fair value of this land on the date of
grant was P240 million and is expected to increase by at
least 20% annually because of the improvements to be
done by the company.
In relation to the attached condition, the company incurred
costs of P80 million in 2019 and P70 million in 2020. On
December 31, 2020, the company estimated that it will
incur additional cost of P30 million in 2021.
14. Non-monetary government grants are measured at
a. Fair value
b. Nominal amount
c. Either a or b
d. Neither a nor b
15. How much should be recognized as income from
government grant for the year ended December 31,
2019?
a. P160,000,000 c. P80,000,000
b. P120,000,000 d. P70,000,000
16. How much should be recognized as income from
government grant for the year ended December 31,
2020?
a. P120,000,000 c. P80,000,000
b. P150,000,000 d. P70,000,000
17. Lively Inc. received a consolidated grant of P120
million. Three-fourths of the grant is to be utilized to
purchase a college building for students from
underdeveloped or developing countries. The balance
of the grant is for subsidizing the tuition costs of those
students for four years from the date of grant.
The college building, which costs P100 million, will be
depreciated using the straight-line method over 10
years. Assuming that the tuition subsidy will be
offered evenly over the period of 4 years, the amount
that should be recognized as income at the end of year
1 is
a. P12.0 million c. P16.5 million
b. P10.0 million d. P17.5 million
18. Which statement is incorrect regarding a government
loan at a below-market rate of interest?
a. The benefit of a government loan at a belowmarket
rate of interest is treated as a government
grant.
b. The benefit of the below-market rate of interest
shall be measured as the difference between the
initial carrying value of the loan determined in
accordance with PFRS 9 and the proceeds
received.
c. The entity shall consider the conditions and
obligations that have been, or must be, met when
identifying the costs for which the benefit of the
loan is intended to compensate.
d. The benefit is accounted for in accordance with
PFRS 9.
19. Puff Company is engaged in the operation of public
highways and skyways in the Philippines. On
November 8, 2019, a catastrophe devastated some of
the company's operated highways and skyways. The
company suffered P5.6 billion loss due to catastrophe.
On January 1, 2020, the Philippine government
decided to compensate the company for the incurred
loss. The government loaned P5 billion at 5% per
annum with maturity period of 5 years. The present
value of cash flows at January 1, 2020 using the
current market rate for similar type of loan after
considering credit risks attached was P4.2 billion. The
conditions stipulated on the loan agreement provide
that the proceeds will be used for reconstruction of the
skyways and highways.
On January 1, 2020, how much should the company
recognize as government grant?
a. Nil c. P4 billion
b. P5 billion d. P0.8 billion
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