Question

Subject is Financial reporting (Answer is require on immegiate basis)

Q.No.6: General Fan Company (GFC) acquired an item of machinery with an amount of Rs.2 million. The company also incurred modification expenditure of Rs. 200,000 and carriage and erection cost of Rs.100,000. The machinery has a useful life of 10 years with no scrap value. The company was able to acquire a government grant of 50% against its purchase price but the grant could not be received by June 30, 2019.The accounting policy of the company is to treat the government grant as deferred credit and transfer a part of the grant to income every year.                                                                                                                               (Marks 06)

Required:

Prepare extracts of General Fan Company’s financial statements for the year ended June 30,2019 for the machinery and the associated grant as per IAS-20 Accounting for Government Grants and Disclosure of Government Assistance

Answer 1

The purchase price of the asset is = 20 lacs

Government grant availed = 20 * 50 %

= 10 lacs.

The total capitalised cost of the asset is = 20 lacs + 1 lacs + 2 lacs.= 23 lacs.

Total amount transferred to deffered income = 10 lacs

useful life of the asset is = 10 years.

Deffered income transferred to the Profit and loss = 10lacs/ 10 = 1 lac.

The extracts shall iclude the following.

In balance sheet = We shall have defferred income at 9 lacs.

Assets at = 23 lacs ( less any depreciation as per policy followed.)

Cash recieved as per grants = 10 lacs.

In profit and loss = I lacs as deffered income.

In notes to accounts.

Disclosure of government grants

The following must be disclosed:

• accounting policy adopted for grants, including method of balance sheet presentation
• nature and extent of grants recognised in the financial statements
• unfulfilled conditions and contingencies attaching to recognised grants