Question

QUESTION 1

Bar Limited is a company that farms corn. Bar Limited is a relatively new company in the corn industry, having previously been in the furniture manufacturing industry. Bar Limited was awarded a government grant of R 500 000 on 1 January 2015, the details of which are as follows:

a) R 300 000 is to assist with the purchase of new harvester;

b) R 200 000 is for immediate financial support and is not associated with any future costs;

c) All conditions attaching to the grant have been met.

Later that day, the harvester was acquired for R 900 000. The harvester has a useful life of years and, at the end of its useful life, Bar Limited expects to sell it for R 50 000 as scrap metal.

Required

Show the general journal entries for the years ended 31 December 2015 to 2019 using the direct method (recognized as grant income)

Answer 1

Journal Entries for the year ended 31st December 2015

Fixed asset dr 900,000

To bank 900,000

(being harvester purchased in cash)

Bank dr 300,000

To Fixed asset 300,000

(being government grant received for that harvester)

Depreciation dr 110000

To Fixed asset 110000

(being depreciation chareged cost of the asset 600000, salvage value 50000, life 5 years)

Bank A/c dr 200000

To Profit & Loss A/c 200000

(Being grant received recognised to profit & Loss A/c)

Journal Entries for the year ended 31st December 2016

Depreciation dr 110000

To Fixed asset 110000

(being depreciation chareged)

Journal Entries for the year ended 31st December 2017

Depreciation dr 110000

To Fixed asset 110000

(being depreciation chareged)

Journal Entries for the year ended 31st December 2018

Depreciation dr 110000

To Fixed asset 110000

(being depreciation chareged)

Journal Entries for the year ended 31st December 2019

Depreciation dr 110000

To Fixed asset 110000

(being depreciation chareged)

Bank A/c dr 50000

To Fixed Asset 50000

(Being harvestor sold)