QUESTION 1

Dabby Sdn. Bhd. have employed 5 workers under an incentive scheme operated by their
local government to get the long term unemployed back into employment.On 1 January
2017, the government paid Dabby RM24,000 for taking on these employees and giving
them a job for the next 2years. Dabby’s salaries expense for the year ended 31
December 2018 was RM100,000.

Required:

Explain the treatment of the grant received by Dabby Sdn. Bhd.,assuming that they
have chosen to present their net salary expense in the P&L.

a) Per IAS 20 this is a revenue grant as the business is being given money towards their
business expenses expenses. Dabby have complied with the terms of the grant by
employing 5 workers.

Initially on 1 January 17, the grant should be recognised as deferred income.

Dr Cash RM24,000
Cr Deferred income RM24,000

Subsequently, the grant is released to the P&L to net the salaries expense, matched to
the 2 year period of employment.

Therefore each year, Dabby can release RM12,000 of deferred income.

Dr Deferred income RM12,000

Cr Salaries expense RM12,000
Dabby total salaries expense in 2018 is therefore RM88,000 (RM100,000 – RM12,000)

Question 2:

On 1 January 2018 Dabby received a government grant of RM500,000, representing 50% of

the cost of a specialised asset that was acquired for cash on the same day.The asset has
a five-year life with no residual value and has been correctly depreciated in the draft
financial statements on a straight-line basis. Dabby’s stated accounting policy is to
account for government grants using the netting-off method.

Required:
Explain the IFRS accounting treatment with supporting calculations and journals as
necessary.
 )Grant
Per IAS 20, Accounting for Government Grants and Disclosure of Government Assistance,
grants should be recognised when there is reasonable assurance that:

 the entity will comply with the relevant conditions,

 the entity will receive the grant.

 These appear to have been met since the grant has been paid towards the asset
purchase.IAS 20 requires grants to be recognised in profit or loss over the periods in which
the entity recognises the expense which the grants are intended to compensate. Under the
netting off method the grant is deducted from the carrying amount of the related asset. The
grant will then be recognised over the life of the related asset by way of a reduced
depreciation charge.

Initially, the cost of the asset will therefore be stated at RM1,000,000

Asset
o Dr NCA RM1,000,000
o Cr Cash RM1,000,000

Grant
o Dr Cash RM500,000
o Cr NCA RM500,000

Depreciation is charged on the asset over its 5 year useful life.

Depreciation for the y/e 31 December X6 is RM100,000 (500k/5)
o Dr Depreciation expense RM100,000
o Cr NCA RM100,000

The carrying amount of the asset at year end is RM400,000 in the SFP.