Ch 2 Tangible Non current Asset Continuation

IAS 20 Government Grants

Revenue Grant

Two methods

Method 1: Record as Income in PL

PL
Revenue 80,000
Admininstrative exp -60,000
Government Income 10,000
Net Profit 30000

Method 2: Reduce the deserved grant amount from the

dedicated expense in PL

PL
Revenue 80,000
Admininstrative exp (60000-10000) -50,000
Net Profit 30,000

1st Jan 2012

100,000$ for keeping workers employed for 10 years

Dr. Cash 100,000

Cr. Other Income 100,000

1st Jan
Dr. Cash 100,000
Cr. Deferred Income 100,000

31st Dec 2012

Dr. Deferred Income 10,000
Cr. Government Grant Income 10,000
 Repayment of Government Grant

Repayment of government grant will depend upon the condition set by the government.

Full Repayment

1 Entire grant amount should be paid.

2 Whatever was booked earlier as income should be shown as loss now.
3 Liability can be reversed as the amount is being paid now.

Zell Kit Q 30

Received 4 million

Day 1
Dr. Cash 4m
Cr. Def Inc 4m

Year end
Dr. Def Inc 1m
Cr. Government Grant Inc 1m

Repayment entry
Dr. Def Inc 3m
Dr. Loss due not fullufilling creiteria 1m
Cr Cash 4m
 Capital Grant

Two methods

Method 1: Record as Income in PL

PL Cost of Machine : 5 million

Revenue 8,000,000 Life : 5 years
Admininstrative exp -6,000,000 Grant received : 1 million
Government Grant Income 200,000
Depreciation -1,000,000
Net Profit 1,200,000

BS
NCA
PPE (5,000,000 - 1,000,000) 4,000,000

Liab
NCL
Deferred Income 600,000

CL
Deferred Income 200,000

Method 2: Reduce the grant amount from the cost of the

asset

PL
Revenue 8,000,000
Admininstrative exp -6,000,000
Dep ( 4m/5yr) -800,000
1,200,000

BS
NCA
PPE (4,000,000-800,000) 3,200,000
t by the government.

Partial Repayment

1. Pay the grant amount for which criteria was not fullfilled.
2. Liability now can be reversed as amount is paid.
achine : 5 million

eived : 1 million
 Consolidation Statement of Financial Position

Consolidated Statement of Financial Position of Tom & jerry

Tom Jerry Consolidated
Assets
NCA
PPE 85000 18000 103000
Investment in Jerry 60000
-->Goodwill 22500
Current Assets 160000 84000 244000

Total 305000 102000 369500

Equity & Liability

Equity
SC 65000 20000 65000
SP 35000 10000 35000
RE (70000+4000) 70000 25000 74000 PRE 20000
--> Non controlling interest(+1000) 13500 POST 5000
CL 135000 47000 182000
4000
Total 305000 102000 369500 Group RE

A Rules of Consolidation
1 Cancel Investment in Subsidiary, Share Capital & Share premium of subsidiary
2 Add goodwill & NCI
3 Adjust RE and make it Group RE
4 Working Notes
1. Group Structure

B Methods for valuation of NCI

i) Proportion of Net Asset method
ii) Fair value method

Illustration Page 135

i) Proportion of Net Asset method

Purchase Consideration 240000 At Market value
Add: NCI ( 40% of 360,000) 144000 At cost
Less: Net worth -360000
Goodwill 24000 Only parents

ii) Fair Value Method

Purchase Consideration 240000 At Market value
Add: NCI 150000 At Market value
Less: Net worth -360000
Goodwill 30000 Includes impact of purchase cons & nci valuation

Impacts of Impairment of Goodwill

If proportion of net asset method is used.

1. Deduct the impairment from goodwill
2. Deduct the entire impairment from GRE W5

If fair value method is used.

1. Deduct the impairment from goodwill
2. Deduct the parents share of impairment from GRE W5
and subsidiarys share from NCI W4
 Working Notes

W1 Group Structure
P--------S
80%

W2 Networth of Subsidiary
At acq Rep Post
SC 20000 0
SP 10000 0
RE 20000 5000 NCI 1000 W4
50000 5000
GRE 4000 W5
W3 Goodwill
Purchase Consideration 60000 80%
PRE 20000 Add: NCI 12500 20%
POST 5000 Less: Networth 50000 100%
Goodwill 22500
1000
NCI

W4 Non Controlling Interest

At acquisition 12500
NCI share in post acq profit 1000
13500

W5 Group Retained Earnings

Parents RE 70000
Parents share in post acq profit 4000

74000
nci valuation