QUESTION 01 SOLUTION

(a) General Entries

For year 31 December 2010 (Grant for past expenses)
31 December 2010 Debit Credit
Salary expenses 30,000
Salaries and wages payable 30,000
(Labour costs incurred during 2010)
Grant income receivable (asset) (30 000 x 30%) 9,000
Grant income 9,000
(Grant income recognised based on past expenses; recognised when the expenses were incurred)
(b) For the year ended 31 December 2010 (Grant for past expenses)
31 December 2010 Debit Credit
Salary expenses 30,000
Salaries and wages payable 30,000
(Labour costs incurred during 2010)
31 March 2011
Grant income receivable (asset) 30 000 x 30% 9,000
Grant income 9,000
(Grant income recognised based on past expenses; recognised when the required audited expense
statement was presented to government)

QUESTION 4 SOLUTION
(a) General Entries
For year 31 December 2011/2012/2013 (Grant related to depreciated assets direct approach)
01 January 2011 Debit Credit
Bank 12,000
Deferred grant income 12,000
Recognising a government grant intended to assist in the acquisition of a nuclear plant
1 January 2011
Nuclear plant: cost (asset) 90,000
Bank 90,000
Purchase of plant
31 December 2011
Depreciation - plant {90 000 -0)/3 years 30,000
Nuclear plant: accumulated depreciation (asset) 30,000
Depreciation on plant
Deferred grant income (12 000/3 years) 4,000
Grant income 4,000
Grant income recognised on the same basis as plant depreciation
31 December 2012
Depreciation – plant (expense) (90,000 - 0}/3 years 30,000
Nuclear plant: accumulated depreciation (asset) 30,000
Depreciation on plant
Deferred grant income (12 000/3 years) 4,000
Grant income 4,000
Grant income recognised on the same basis as plant depreciation
31 December 2013
Depreciation - plant (expense) (90 000 - 0) / 3 years 30,000
Nuclear plant: accumulated depreciation (asset) 30,000
Deferred grant income (12,000 / 3 years) 4,000
Grant income 4,000
Note: the statement of comprehensive income will reflect: 2011 – 2013: a depreciation expense of 30
000 and grant income of 4 000 (net decrease in profits: 26 000 per year).
QUESTION 5 SOLUTION
(a) General Entries
For year 31 December 2011/2012/2013 (Grant related to depreciated assets direct approach)
1 January 2011 Debit Credit
Bank 12,000
Deferred grant income 12,000
Recognising a government grant intended to assist in the acquisition of a nuclear plant
 2 January 2011
Nuclear plant: cost (asset) 90,000
Bank 90,000
Purchase of plant
Deferred grant income 12,000
Nuclear plant: cost (asset) 12,000
Recognising the government grant as a reduction of the plant’s cost
31 December 2011
Depreciation - plant (expense) (90 000 – 12 000 – 0) / 3 years 26,000
Nuclear plant: accumulated depreciation (asset) 26,000
Depreciation on plant
31 December 2012
Depreciation - plant (expense) (90 000 – 12 000 – 0) / 3 years 26,000
Nuclear plant: accumulated depreciation (asset) 26,000
Depreciation on plant (net of 30,000 – 4,000 as was in previous example)
31 December 2013
Depreciation - plant (expense) (90 000 – 12 000 – 0) / 3 years 26,000
Nuclear plant: accumulated depreciation (asset) 26,000
Depreciation on plant
Note: the statement of comprehensive income will reflect: 2011 – 2013: a depreciation expense of 26
000 (net decrease in profits: 26 000 per year). Compare this to example 4.
QUESTION 6 SOLUTION
General Entries
For year 31 December 2011/2012/2013 (Grant related to a non-depreciable asset – direct approach)
1 January 2011 Debit Credit
Bank 12,000
Deferred grant income 12,000
Government grant received to assist in the acquisition of land
Land: cost 90,000
Bank 90,000
Purchase of land
31 March 2011
Factory building: cost 300,000
Bank 300,000
Building costs related to factory, paid in cash
31 December 2011
Depreciation – factory building (300 000 – 0) / 3 years x 9 / 12 75,000
Factory building: accumulated depreciation 75,000
Depreciation of factory building
Deferred grant income 12 000 / 3 years x 9 / 12 3,000
Grant income 3,000
Grant income recognised on the same basis as depreciation on the factory building
31 December 2012
Depreciation – factory building (300 000 – 0) / 3 years 100,000
Factory building: accumulated depreciation 100,000
Depreciation of factory building
Deferred grant income 12 000 / 3 years 4,000
Grant income 4,000
Grant income recognised on the same basis as depreciation on the factory building
31 December 2013
Depreciation – factory building (300 000 – 0) / 3 years 100,000
Factory building: accumulated depreciation 100,000
Depreciation of factory building

Deferred grant income 12 000 / 3 years 4,000

Grant income 4,000
Grant income recognised on the same basis as depreciation on the factory building
31 December 2014
Depreciation – factory building (300 000 – 0) / 3 years x 3 / 12 25,000
Factory building: accumulated depreciation 25,000
Depreciation of factory building
 Deferred grant income 12 000 / 3 years x 3 / 12 1,000
Grant income 1,000
Grant income recognised on the same basis as depreciation on the factory building

Question 7 SOLUTION
General Entries
(a) Grant Asset – Fair Value
Debit Credit
Fishing license (asset) Given 50,000
Deferred income 50 000 – 1 000 49,000
Bank Given 1,000
Recognising the license granted by the government at fair value

(b) Grant Asset – Fair Value

Fishing license (asset) Given 1,000
Bank Given 1,000
Recognising the license granted by the government at nominal value

Question 8 SOLUTION
General Entries
(a) Grant is a package deal

For year 31 December 2011/2012/2013 (Grant related to a non-depreciable asset – direct approach)
1 January 2011 Debit Credit
Bank 120,000
Deferred grant income 90,000
Grant income 30,000
Recognising a government grant: package deal and Portion of grant income recognised immediately – not
attached to any asset or future expenses and all criteria met in a prior year: 30000
1 January 2011
Vehicles: cost 210,000
Bank 210,000
Purchase of vehicles
31 December 2011
Depreciation – vehicles (210 000 – 0) / 3 years 70,000
Vehicles: accumulated depreciation 70,000
Vehicles: accumulated depreciation
31 December 2011
Deferred grant income (90000) / 3 years 30,000
Grant income 30,000
Portion of grant income related to purchase of vehicles recognised on the same basis as vehicle depreciation
31 December 2012
Depreciation – vehicles (210 000 – 0) / 3 years 70,000
Vehicles: accumulated depreciation 70,000
Depreciation of vehicles
Deferred grant income (90000) / 3 years 30,000
Grant income 30,000
Portion of grant income related to purchase of vehicles recognised on the same basis as vehicle depreciation
31 December 2013
Depreciation – vehicles (210 000 – 0) / 3 years 70,000
Vehicles: accumulated depreciation 70,000
Depreciation of vehicles
Deferred grant income (90000) / 3 years 30,000
Grant income 30,000
Portion of grant income related to purchase of vehicles recognised on the same basis as vehicle depreciation
 QUESTION 9 SOLUTION
General Entries
(a) Grant related to expenses-repaid
1 January 2011 Debit Credit
Bank 10,000
Deferred grant income 10,000
Recognising a government grant intended to reduce future expenses

31.12.2011
Mining expenses 80,000
Accounts payable / cash 80,000
Deferred grant income 5,000
Grant income 5,000
30.09.2012
Mining expenses 60,000
Accounts payable / cash 60,000
Deferred grant income 3,750
Grant income 3,750
(10 000 x 50% x 9/12)
Deferred grant income 1,250
Forfiet expense 8,750
Bank 10,000
(repayment)
(b) grant related to expenses – repaid
1 January 2011
Bank 10,000
Deferred grant income 10,000
Recognising a government grant intended to reduce future expenses
31.12.2011
Mining expenses 80,000
Accounts payable / cash 80,000
Deferred grant income 5,000
Mining expenses 5,000
30.09.2012
Mining expenses 60,000
Accounts payable / cash 60,000
Deferred grant income 3,750
Mining expenses (10 000 x 50% x 9/12) 3,750
Deferred grant income 1,250
Mining expense 8,750
Bank 10,000
(repayment)

**********