Module 5

Question 1

Fair value government grants

Answer 1

Show grant as well

Deferred income so can’t recognise all in one

10000 asset bought with 2000 grant, 10 year life

Fixed asset 10000 B/S
Liability 2000 B/S

In P+L doesn’t depriciate, depreciation has to have grant over that year on top
1000/10 =1000
2000/10 =200
800 depreciation

Question 2

Nominal value government grants

Answer 2

No income as don’t recognise the grant
E.g 2000 grant on 10000 asset
10 year life

B/S Fixed Asset 8000

P+L Exp deprecation 800

Question 3

What is an accrual?

Answer 3

Received benefit but not invoiced/paid

Credit

Question 4

What is accrued income?

Answer 4

Owed income, earned but not yet invoiced

Debit

Question 5

What is deferred income?

Answer 5

Owes services

Invoiced/paid yet not done it

Credit

Question 6

What is commitment accounting?

Answer 6

Alternative to accruals
Commonly public sector (fixed amount of income to spend over given period)

As soon as goods and services are ordered/contract entered it is treated as committees expenditure and will be deducted from budgets rather than waiting for invoice

Question 7

Why is commitment accounting beneficial for public sector bodies?

Answer 7

Allows them to see how much of their budget has been committed and should help avoid orders with insufficient funds left to pay

Question 8

What does government refer to?

Answer 8

Local, national and international governments and agencies e.g EU, world banks and U.K. governments and authorities

Question 9

What is government assistance?

Answer 9

Action by government designed to benefit a specific business or range of businesses

Question 10

What are government grants?

Answer 10

Form of assistance involving the transfer of resources (usually cash) to a business in return for past or future compliance with conditions relating to operating activities of the business

Question 11

What are grants relating to assets?

Answer 11

Are grants towards capital expenditure made by the business

Question 12

What are grants relating to income?

Answer 12

Other than those relating to assets and are normally related to expenses

Question 13

What are forgivable loans?

Answer 13

Loans the lender undertakes to waive repayment of if certain conditions are met
Same treatment as gov grants

Question 14

Grants should not be recognised until there is reasonable assurance that?

Answer 14

Entity will comply with conditions of the grant

Grant will be received

Question 15

What are contingent liabilities?

Answer 15

Future liabilities that might occur in the future

Uncertainty so not included in NL or B/S

Question 16

Income grants can be further classified into?

Answer 16

Relating to costs already incurred

Costs not yet incurred

Question 17

Assets grants can be further classified into?

Answer 17

Cash received to be spent on assets

Assets received directly (non monetary)

Question 18

Income grants for costs already incurred journal entry?

Answer 18

Dr Bank/Accrued income
Cr P+L other income

(No future costs so credit to p+l in period)

Question 19

Journal entry for income grants costs not yet incurred?

Answer 19

Dr Bank
Cr Deferred income

Still owe performance of grant conditions

Question 20

Grants relating to assets in B/S

Answer 20

Either credit grant to deferred income or deduction from total cost of asset (FA cost -grant (dep net amount)

Question 21

Journal if asset credited directly?

Answer 21

Dr Bank/Accrued income

Cr Fixed asset cost

Question 22

Record what when non-monetary (asset itself) grant received ?

Answer 22

Fair value of item as cost + value of grant
Dr Fixed asset-cost
Cr Deferred income

Question 23

Journal entry to record amortisation of grants?

Answer 23

Dr deferred income

Cr P+L other income/relevant expense

Question 24

When is a grant said to be amortised?

Answer 24

When it is released to the P+L

Income grants will be released to match against the costs they are intended to cover