Deck 38: Accounting for Government Grants and Disclosure of Government Assistance

Question 1

Which of the following is a form of government assistance accounted for under IAS 20?

A) Income Tax Holidays
B) Investment Tax Credits
C) Accelerated depreciation allowances
D) None of the above.

Answer 1

None of the above.

Question 2

In 20X8, Commander Cars Entity (CCE) was provided with a $670,000 interest-free loan from a national government for a period of ten years to expand operations of a new manufacturing subsidiary. The entity is located in an area of the country that has seen an exodus of production capital; therefore financing for this type of project is difficult. The market interest rate for a similar 10-year loan is 4%. No future performance conditions are attached to this loan. Which of the following entries would be included in the accounting for this loan?

A) Credit to Liability-Loan 670,000
B) Debit to Financial Asset-Cash $503,000
C) Credit to Income-Profit or Loss $167,000
D) Credit to Liability-Loan 217,000

Answer 2

Credit to Liability-Loan 217,000

Question 3

On April 1, 20X1, a local government grants Victoria Transit Entity (VTE) a shuttle license, free of charge. The terms of the license grant require VTE to operate a shuttle between three cities for a period of six years. Which of the following is true?
I. Under IAS 20, no record is necessary.
II. The fair value of the license should be recognized as an asset.
III. The government grant should be recognized as an asset.
IV. The transaction may be recorded at nominal value.

A) I
B) II, IV
C) II, III
D) III, IV
E) II, III, IV

Answer 3

II, IV

Question 4

When deducting a government grant to arrive at the carrying amount of a related asset, which of the following is true?

A) A financial liability is created.
B) The grant is recognized immediately.
C) The grant is recognized as a reduction in depreciation expense.
D) None of the above.

Question 5

Government grants are recognized when there is a significant possibility that the entity will comply with the relevant conditions attached to them and that the grants will be received.

Question 6

Grants related to assets may be presented as deferred income or recognized in profit or loss over the life of a depreciable asset as a reduction in depreciation expense.

Question 7

Under IAS 20, when an entity receives a non-monetary grant, the asset should be initially recorded at cost and be revalued to fair value in subsequent years.

Question 8

Entities can, but are not required, to provide disclosures of other forms of government assistance from which the entity has received benefit.

Question 9

Under IAS 20, a government grant is not recognized until there is "reasonable assurance" that the entity will comply with the relevant conditions attached to them. How is this policy consistent with the Conceptual Framework?