Raye Company acquired man old equipment acquired years quipment was purchased for P700,000 and had mint of P260,000, On the date of the exchange, jent had a fair value of P280,000. In addition, P910,000 cash for the new equipment which. Price of P1,260,000, The exchange lacks commercial ioe, At what amount should the new equipment be recorded? 1,260,000 1,170,000 1)190,000 910,000. ‘oblem 29-43 (IAA) the beginning of current year, Allison Company purchased Jew machine on a deferred payment basis. A down payment P200,000 was made and four annual installments of (00,000 each are to be made every year-end. The cash quivalent price of the machine was P2,300,000. Due to an ployee strike, the entity could not install the machine mediately and thus incurred P30,000 of storage cost. Cost of installation excluding the storage cost amounted to P§0,000. What is the initial amount to be capitalized as the oat of the machine? 2,300,000 2,380,000 2,410,000 2,600,000 Problem 29-44 (IAA) During self-construction of an asset, Laica Company incurred the following costs: ed overhead for the year Portion of fixed overhead that would be allocated toconstructed asset 300,000 Variable overhead attributable to self-construction 275,000 What amount of overhead should be included in the cost of the constructed asset? a, 575,000 " b, 275,000 e, 300,000 a. 0 5,000,000. GOVERNMENT GRANT Definition PAS 20, paragraph 3, defines government grant as "assistance by government in the form of transfer of resources to an entity ‘in return for part or future compliance with certain conditions relating to the operating activities of the entity’. Government grant is sometimes called by other names such as subsidy, subvention or premium. Technically, to qualify as a government grant (either monetary or nonmonetary), it is a prerequisite that the grant shall be provided by the government to an entity in return for past or future compliance with conditions relating to the operating activities of the entity, ‘A forgivable loan from government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan. PAS 20, paragraph 10, provides that the benefit of government loan with a NIL or below-market rate of interest is treated as a government grant. Paragraph 10A further provides that the benefit is measured as the difference between the face amount and the present value of the loan. 1051ng nonmonetary grant at fair value, grant of P15,000,000 from the national d when there is reasonable assurance that: lor the purpose of defraying safety and ential expenses over the period of three years. comply with the conditions attaching to the , safaty and environmental expenses will be incurred by tho entity as follows: | grant does not of itself provide conclusive evidence mnditions attaching to the grant have been or will be ; First year 2,000,000 Second year 3,000,000 ‘Third year 6,000,000 10,000,000 PAS 20 provides that "grant" in recognition of specific expenses shall be recognized as income over the period cations of government grant of the related expense." aint related to asset Accordingly, the grant of P15,000,000 is allocated as income This is government grant whose primary condition is that over three years in proportion to the costs incurred. entity qualifying for the grant shall purchase, construct Ri otherwise acquire long-term asset. Besar: Bubsidiory, conditions may also be attached restricting the Cash f 15,000,000 or location of the asset or the periods during which. Deferred grant income 15,000,000 \sset: is to be acquired or held. Motard part tune A hoo oan i Grant income 3,000,000 Irant related to income SURE cde toe, By residual definition, this is government grant other than f Wee sests cst fe Bavironmental expenses 2,000,000 i Cash 2,000,000 iting for government grant cone nt grant shall be recognized as income on a A ic basis over the periods in which an entity Deterted @anneowe) __ 4600,000 Grantincome 4,600,000 fs exponses the related costs for which the grant d to compensate. (8/10 x P15,000,000) Environmental expenses 3,000,000 he grant is taken to income over one or more Cash : 3,000,000 10537,600,000 ( 7,500,000 5/10 x P15,000,000) ironmental expenses 5,000,000 Cash, 5,000,000 Illustration 2 An entity received a grant of P50,000,000 fiom the Australian government for the acquisition of a chemical facility with an estimated cost of P80,000,000 and useful life of 5 years, PAS 20 provides that "grant related to depreciable asset shall be recognized as income over the periods and in proportion to the depreciation of the related asset." Accordingly, the grant of P50,000,000 is allocated as ineome over 6 years depending on the method of depreciation. If the straight line method is used, the pertinent entries in the first year are: 1 Cash 50,000,000 Deferred grantincome 50,000,000 2. Building 80,000,000 Cash. 80,000,000 3. Depreciation 16,000,000 ‘Accumulated depreciation 16,000,000 (80,000,000 /5) 4, Deferred grantincome 10,000,000 Grant income 10,000,000 (60,000,000/ 5) Illustration 3 An entity is granted a large tract of land in Mindanao by the national government. The fair value of the land is P60,000,000, ‘The grant: requires that the entity shall construct a refinery on the site. The cost of the refinery is estimated to be P100,000,000 and the useful life is 20 years, 1054 nondepreciable jain conditions shall be the periods which bear the ‘the grant of P60,000,000 is allocated over 20 years. l entries in the first year and 60,000,000 Deferred grantincome 60,000,000 100,000,000 100,000,000 6,000,000 Accumulated depreciation 5,000,000 (100,009,000 / 20) |, Deferred grantincome 3,000,000" Grantincome 3,000,000 (60,000,000 / 20) Illustration 4 An entity received grant of 50,000,000 from the USA government to compensate for massive Josses incurred because of a recent earthquake. PAS 20 provides that "a government grant that becomes receivable as compensation for expenses or losseg already incurred or for the purpose of giving immediate " financial supportto the entity with no further related costs shall be recognized as income of the period in which it becomes receivable." Accordingly, the grant of P50,000,000 is recognized as income immediately as follows: Cash. 50,000,000 Grantincome 50,000,000 1055