Question 3 (30 Marks)

Industrial Development Corporation (IDC) granted Naseer Pty(Ltd) R20 000 on 01 January 2021 to assist in the purchase of a manufacturing plant.

The grant was conditional upon Naseer Pty(Ltd) purchasing the plant and manufacturing for a period of at least two unbroken years. If the conditions of the grant were not met, the terms of the grant required that the grant be repaid in full, immediately.

The plant was purchased on 3rd January 2021 for R200 000 and was depreciated on the straight-line basis over its useful life of 4 years to a nil residual value.

Other information:

- Naseer ceased manufacturing on 31 March 2022 due to unforeseen circumstances.

- The asset was not considered to be impaired and Naseer intended to resume manufacturing on the next year.

- Ignore the effect of tax and VAT.

- Assume that Naseer Pty(Ltd) recognises grants as grant income.

- The year end is 31 December.

Required:

a) Show the journal entries relating to the grant for the year ended 31 December 2021 and up until 31 March 2022. Cleary show the journal narrations. (18 marks)

b) Explain how the following grants are recognised considering tax implications?

- Grants related for immediate financial support or past expenses (taxable).

- Grants related for immediate financial support or past expenses (non-taxable).

- Grants to assist with future expenses (taxable).

- Grants to assist with future expenses: not taxable.

- Grants related to assets(taxable).

- Grants related to assets( non-taxable).