Theory

1. Grants whose primary condition is that the recipient entity should acquire or contract long-
term assets.

a. Grants related to Income

b. Monetary grants

c. Grants related to assets

d. Non-monetary grants

2. ______ are assistance received from the government in the form of transfers of resources in
exchange for compliance with certain condition

a. Government assistance

b. Government grants

c. Monetary grants

d. Non-monetary grants

3. Monetary grants are measured at

a. Fair value

b. Amount of cash received or fair value of the amount

c. Fair value less cost to sell

d. Carrying amount

4. Pas 20 provides the following reason why the receipt of government assistance may be
significant in the preparation of the financial statements.

I. If resources are received, an appropriate accounting method is necessary to account for

II. The indication of the extent to which the entity has benefited from the assistance during
the period improves the comparability of it's financial statements .

a. Only I is true
 b. Only II is true

c. Both are true

d. Both are false

5. Grants other those related to assets are :

a. Grants related to assets

b. Grants related to revenue

c. Grants related to liability

d. Grants related to Income

6. The grant is presented as a deffred income(liability)

a. Gross presentation

b. Net presentation

c. Liability presentation

d. Equity presentation

7. The repayment of a grant to asset us treated as

a. Increase in the assets

b. Decrease in the assets

c. Reduction in the deffered income balance

d. Included in the deffered income balance

8. A government grant us recognized as income as the related expense for the grant was
intented to compensate is incurred.

a. Reliably

b. Matching

c. Timelines

d. Verifiability
9. Grants are measured at

a. Fair value

b. Carrying amount

c. Fair value less cost to sell

d. NRV

10. The repayment of government grant us accounted as

a. Retrospectively

b. Prospectively

c. A and b

d. Not accounted

Computational questions

1. On January 1, 20x2 , XYZ Co. received a cash of P8,000,000 from the government to be used
to defray safety and other gazard-related cost over a five- year period. It was estimated that
such cost will accumulate to P16,000,000 over the next five years. In 20x2, and 20x3, actual cost
of safety and other hazard-related cost amounted to P1,000,000 and P1,200,000 respectively.
On January 1, 20x4 the government demanded the repayment of the P8,000,000 grant.

What is the balance of defered income as of January 1, 20x4?

a. 4,000,000

b. 500,000

c. 600,000

d. 2,900,000

2. On January 1, 20x3, Lindin Co. received cash of P5,000,000 from the government to be used
in constructing a building. The construction was completed on December 31, 20x3 for the total
cost of P15,000,000. The building is depreciated over 20 years. On January 1, 20x6 the
government demanded repayment of the P5,000,000 grant

What is the balance of deferred income as of January 1, 20x6 ?

b. 3,600,000

c. 4,500,000

d. 3,000,000

Use the following information for the next 2 question

On January 1, 20x1 Shane Co. received P4,000,000 grant from the government to aid the
construction of a new building. The construction of the building was finished on March 31,20x2
for a total Cost of P8,000,000. The building is estimated to have a useful life of 20 years and a
residual value of P1,000,000.

3. If Shane Co, uses the gross presentation, how much is the income from the government grant
in 20x2?

a. 155,000

b. 145,000

c. 150,000

d. 149,000

4. If Shane Co. Uses the net presentation, how much is the depreciation expense in 20x1?

a. 112,500

b. 111,500

c. 112,000

d. 111,000

Use the following information for the next three question

On August 1,20x1, RVM Co. Received P1,200,000 grant from the government to aid in RVM Co.
's clean-up drive in anearbu creek. The clean up took RVM Co. 6 months to complete- from
September 1, 20x1 to march 1, 20x2. The clean up cost totaled P2,700,000 and we're incurred
evenly.
5. If RVM Co. Uses gross presentation, how much is the income from the government grant in
20x1?

a. 800,000

b. 700,000

c. 850,000

d. 750,000

6. If RVM Co. Uses the net presentation, how much is the cost of the clean up recognized as
expense in 20x1?

a. 1,000,000

b. 1,800,000

c. 1,200,000

d. 900,000

7. How much is the balanced of the deferred income from government grant on December 31,
20x1 ?

a. 400,000

b. 500,000

c. 450,000

d. 300,000

8. On July 1, 20x2 a flood damaged one of the Aspire's buildings . The building has a carrying
amount of P26,000,000 before the flood. Because of the damages, the building is now assessed
to have a recoverable amount of P9,000,000 and reduced remaining life of 4 years. To aid in the
loss, the government granted Aspire Co. P400,000 cash. How much is the income from
government grant in 20x2?

a. 200,000

b. 400,000

c. 300,000
 d. 900,000

9. Apple Company purchased a jewel polishing machine for P400,000 on January 1, 20x1 and
received a government grant of P50,000 towards the capital lost. Company policy is to treat the
grant as a reduction in thecost of the asset. The machine was to be depreciated on a straight
line basis over 10 years and was estimated to have a residual value of P5,000 at the end of this
period. What should be the depreciation expense in respect of the machine for the year ended
December 31, 20x1?

a. 43,500

b. 34,500

c. 40,000

d. 55,000

10. January 1, 20x1 Canister Company purchased a playing machine costing of P140,000.
Canister received a grant is P14,500 towards the capital cost. Company policy is to treat the
grant as a reduction in the cost of the asset. What should be the depreciation expense in
respect of this machine for the year ended December 31,2010, assuming that depreciation is
calculated on 20% reducing balance basis ?

a. 20,080

b. 20,000

c. 21,000

d. 19,500