Jannah Bhd

5. What is the alternative accounting treatment available to the company with

regards to government grant? Explain how this will differ with the policy adopted
by the company.

The alternative method is the written off against asset method. Under this method, the
grant received will reduce the cost of the asset to RMRM4,000,000 and depreciation
charge will be based on this reduced amount.

Under the deferred income method, the asset is measured at the original cost of
RM7,000,000 and depreciation charge is based on this amount. The grant received is
treated as deferred income and a transfer to SOCI is made to amortise the deferred
income over the life of the related asset.

6. Prepare the journal entries to record the above transactions related to government
grants for the year ended 31 December 2013.

DR Plant RM7,000,000
CR Bank RM7,000,000

DR Bank RM3,000,000
CR Deferred income RM3,000,000

DR Bank RM1,500,000
CR Ordinary share capital RM1,500,000

DR SOPL – dep. RM350,000

CR Acc. Dep. RM350,000

DR Deferred income RM150,000

CR SOPL RM150,000

7. Prepare an extract of the statement of comprehensive income for the year ended
31 December 2013 to account for the government grant above.

Statement of profit and loss and comprehensive income for the year ended 31
December 2013

Add: Revenues:

Amortization of deferred income RM150,000

Less: Expenses:

Depreciation on plant RM350,000

8. Prepare an extract statement of financial position as at 31 December 2014 with
regard to government grants.

Statement of financial position as at 31 December 2014

Non-current assets

Plant RM7,000,000

Less: Acc. Dep. (RM1,050,000)

Carrying amount RM5,950,000

Non-current liabilities
Deferred income RM2,250,000

Current liabilities
Deferred income RM300,000

9. Prepare the journal entries to record the above transactions related to government
grants for the year ended 31 December 2013 if the company applied the written off
against asset method in accounting for government grants.

DR Plant RM7,000,000
CR Bank RM7,000,000

DR Bank RM1,500,000
CR Ordinary share capital RM1,500,000

DR Bank RM3,000,000
CR Plant RM3,000,000

DR SOPL – dep. RM200,000

CR Acc. Dep. RM200,000 ((7,000,000-3,000,000)/10 x 6/12)

10. Prepare an extract statement of financial position as at 31 December 2014 with

regard to government grants if the company applied the written off against asset
method in accounting for government grants.

Statement of financial position as at 31 December 2014

Non-current assets

Plant (7,000,000-3,000,000) RM4,000,000

Less: Acc. Dep. (RM600,000)

Carrying amount RM3,400,000
 Zuraz Bhd

9. Discuss the accounting treatment for government grant received and how it differ
from the alternative method. (calculation is not required)

Under the deferred income method, the asset is measured at the original cost of
RM8,000,000 and depreciation charge is based on this amount. The grant received is
treated as deferred income and a transfer to SOCI is made to amortise the deferred
income over the life of the related asset.

The alternative method is the written off against asset method. Under this method, the
grant received will reduce the cost of the asset to RMRM4,000,000 and depreciation
charge will be based on this reduced amount.

10. Illustrate the journal entries relating to the acquisition of the plant including the
government grant received for the year ended 31 December 2013, in accordance
with MFRS 120 Accounting for Government Grants and Disclosure of Government
Assistance.

DR Plant RM8,000,000
CR Bank RM8,000,000

DR Bank RM4,000,000
CR Deferred income RM4,000,000

DR Bank RM1,500,000
CR Ordinary share capital RM1,500,000

DR SOPL – dep. RM400,000

CR Acc. Dep. RM400,000

DR Deferred income RM200,000

CR SOPL RM200,000

11. Prepare an extract of the statement of comprehensive income for the year ended
31 December 2013 to account for the government grant above.

Statement of profit and loss and comprehensive income for the year ended 31
December 2013

Add: Revenues:

Amortization of deferred income RM200,000

Less: Expenses:

Depreciation on plant RM400,000

12. Prepare an extract statement of financial position as at 31 December 2013 with
regard to government grants.

Statement of financial position as at 31 December 2013

Non-current assets

Plant RM8,000,000

Less: Acc. Dep. (RM400,000)

Carrying amount RM7,600,000

Non-current liabilities
Deferred income RM3,400,000 (4,000,000-400,000-200,000)

Current liabilities
Deferred income RM400,000

13. Prepare an extract of the statement of comprehensive income for the year ended
31 December 2014 to account for the government grant above.

Statement of profit and loss and comprehensive income for the year ended 31
December 2014

Add: Revenues:

Amortization of deferred income RM400,000

Less: Expenses:

Depreciation on plant RM800,000

14. Prepare an extract statement of financial position as at 31 December 2014 with

regard to government grants.

Statement of financial position as at 31 December 2014

Non-current assets

Plant RM8,000,000

Less: Acc. Dep. (RM1,200,000)

Carrying amount RM6,800,000

Non-current liabilities
Deferred income RM3,000,000

Current liabilities
Deferred income RM400,000
15. Prepare the journal entries to record the above transactions related to government
grants for the year ended 31 December 2013 if the company used the alternative
method in accounting for government grants.

DR Plant RM8,000,000
CR Bank RM8,000,000

DR Bank RM1,500,000
CR Ordinary share capital RM1,500,000

DR Bank RM4,000,000
CR Plant RM4,000,000

DR SOPL – dep. RM200,000

CR Acc. Dep. RM200,000 ((8,000,000-4,000,000)/10 x 6/12)

16. Prepare an extract statement of financial position as at 31 December 2014 with

regard to government grants if the company applied the written off against asset
method in accounting for government grants.

Statement of financial position as at 31 December 2013

Non-current assets

Plant (8M-4M) RM4,000,000

Less: Acc. Dep. (RM200,000)

Carrying amount RM3,800,000