Question 2 (20 marks) The Elegant Garments Company (the company) engages in the manufacturing, exporting, retailing and wholesaling of garment products in Hong Kong, Macau, mainland China and Europe. Further to the significant growth of the manufacturing operation in mainland China, the local government approved and paid a cash subsidy of RMB10 million to the company on 1 June 2017, for its past contribution in creating jobs in the local area. Since then, the local government has been very active in discussing additional investment at the manufacturing operation. As a result of discussions, the local government agreed: To give (free of charge) a piece of land (fair market value at RMB40 million) to the manufacturing operation to expand its factory. The land title was transferred to the company 1 June 2018 To subsidize in cash 30% of the factory's capital expenditure in machinery and equipment in the period from 2019 to 2021 up to a maximum of RMB60 million (i.e. for capital expenditure of RMB200 million) On 1 September 2018, to show its appreciation and to facilitate a smooth start to the capital expenditure plan, the local government paid RMB20 million to the manufacturing operation right after the company submitted a capital expenditure plan for 2019 to 2021. On 1 January 2019, the manufacturing operation spent approximately RMB 100 million for capital expenditure on machinery and equipment and further received RMB16 million from the local government. The useful life of this machinery and equipment is 10 years with no residual value The company has its financial year end on 31 December. No depreciation is charged on land Required: Prepare journal entries (with dates and narratives) and briefly explain the accounting treatment for each of the following in the financial statements of the company The cash subsidy of RMB10 million from the local government The land given by the local government free of charge a ii The RMB20 million received in 2018 and the RMB16 million received in 2019. The company recorded the government grant as a deduction from the carrying amount of the machinery and equipment (13 marks) Prepare the extracts of statement of financial position at 31 December 2019. b (3 marks) c On 1 January 2020, the company has to pay back RMB10 million to the government due to non-fulfilment of some required conditions in the agreement. Prepare the journal entries (with date and narratives) (4 marks) to record the trans action