QUESTION 3 [25]

Muffins Limited, a manufacturer and retailer of muffins supplied to convenience stores around the country was awarded a government grant of R150 000 on the 1 January 2018 to purchase a new muffin making machine costing R300 000.

This machine would enable the company to manufacture and pack the muffins with less contamination, have higher production quantities and neater packaging in a shorter period. The machine was purchased on the 1 March 2018 and had a useful life of 4 years with a residual value of R20 000.

The company uses the straight-line method for depreciation. The grant was received because of compliance with certain conditions in the prior year. All conditions attached to the grant, except for the acquisition of the machine had all been met on date of receipt.

REQUIRED

Provide the general journal entries for the years ended 31 December 2018 and 2019.

The company has the policy of recognising government grants as grant income. (25)

All dates and narrations are required. Please show workings where applicable and round off to the nearest whole where applicable