GEN 009: Entrepreneurial Mind for BSA

Module #3 Student Activity Sheet

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Lesson title: Government Grants Materials:

Learning Targets:
At the end of the module, students will be able to:
1. Account for Government grants
2. Explain the presentation of government grants in the
financial statements
3. Explain the Repayment of Government Grant
Student Activity Sheets, Pen, Basic
calculator, Intermediate Accounting 1B
textbook
References:
Millan, Z. B, Intermediate Accounting 1B

A. LESSON PREVIEW/REVIEW

Good day, future accountant! Welcome back to learning the General elective converted Intermediate Accounting.
As a continuation, this module introduces the Accounting for Government Grants.

Set time limits for yourself each day. Maybe you won’t start working until mid-morning so that you can go for a run
and eat a healthy breakfast. Maybe you won’t work best at 6PM since you want to spend that time with your
family.

B.MAIN LESSON
Government grants are recognized in profit or loss on a systematic basis over the periods in which the entity
recognizes as expenses the related costs for which the grants are intended to compensate.

Government grants are accounted for using the matching concept. If there is no recognition of related expense,
there is no recognition of income.

What are the rules for the recognition of government grant as income?

Presentation of Government Grants in the Financial Statements

A. GRANTS RELATED TO ASSETS – grants whose primary condition is that entity qualifying for the grant
should purchase, construct or otherwise acquire long-term asset.

Statement of Financial Position

Gross Presentation Net Presentation
The grant is presented as deferred income The grant is deducted from the carrying amount of
(liability) the related asset

Statement of Comprehensive Income

Gross Presentation Net Presentation
The income from the grant is reported separately The income from government grant is deducted
in Other income from related expense

This document is the property of PHINMA EDUCATION

 GEN 009: Entrepreneurial Mind for BSA
Module #3 Student Activity Sheet

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Note: Whether gross or net presentation, the net amount presented in profit or loss is the same.

Repayment of Government Grant

A government grant that becomes repayable because conditions of receipt have nit been met shall be accounted
for as a change in accounting estimate and accounted for prospectively.

Summary of Accounting Treatments

Gross Presentation
Grant Related to Income
Net Presentation Approach 1
Gross Presentation
Grant Related to Assets
Net Presentation Approach 2

APPROACH 1:
Repayment of the grant shall be applied first against any unamortized deferred income and any excess shall be
recognized immediately as an expense.

APPROACH 2:
STEP 1: Increase the carrying amount of the asset representing the repayment of grant (the corresponding credit
to cash).
STEP 2: The cumulative additional depreciation that would have been recognized to date in the absence of the
grant shall be recognized immediately as an expense.

DISCLOSURE
1. The following must be disclosed: accounting policy adopted for grants, including method of balance
sheet presentation nature and extent of grants recognised in the financial statements unfulfilled conditions
and contingencies attaching to recognised grants.
2. It is not required to disclose the name of the government agency that gave the grant along with the
date of sanction of the grant by such government agency and the date when cash was received in case of
monetary grant.

Activity 3: Skill Building Activity

Read the following cases below then answer the succeeding requirements.

Entity Z receives the following grants in 20x1:

a. P1,000,000 cash conditioned on the acquisition of equipment.
b. Land with fair value of P800,000 conditioned on the construction of a building on the land.
c. P600,000 cash as aid on a planned environmental project – a cleanup dive on coastal areas within the
community.
d. P200,000 cash as aid on losses incurred from a recent typhoon.
Requirement 1: Explain how Entity Z shall account for each of the grants above.

This document is the property of PHINMA EDUCATION

 GEN 009: Entrepreneurial Mind for BSA
Module #3 Student Activity Sheet

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

a.

b.

c.

d.

Requirement 2: Provide the entries to record the receipts of the grants. Use gross presentation.

Particulars Debit Credit

a.

b.

c.

d.

The following transactions occurred in 20x1 after the receipt of the grants:
a. Equipment was acquired for P1,200,000 on March 1, 20x1. The equipment was assessed tohave a 5 year
useful life and a 10% residual value. Entity Z use the SYD method of depreciation.
b. Construction of a building on the land was started. Total construction costs incurred during the period
amounted to P2,000,000.
c. The clean-up drive was finished for a total cost of P720,000.

Requirement 3: Provide entries to record the subsequent transactions. Use the gross
presentation.

Particulars Debit Credit

1.

2.

3.

4.

5.

This document is the property of PHINMA EDUCATION

 GEN 009: Entrepreneurial Mind for BSA
Module #3 Student Activity Sheet

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

6.

Activity 4: Check for understanding

In your own words, explain the matching concept in relation to government grants.

C. LESSON WRAP-UP
1) Activity 5: Thinking about Learning
Congratulations for finishing this module! Shade the number of this module that you just have finished.
P1 P2 P3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 25

Did you have challenges learning the concept in this module? If none, which part of module helped you learn
the concepts? ____________________________________________________________

Assignment:
Read Accounting for Borrowing Costs.

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