- 5 Marks
FR – Nov 2024 – L2 – Q5b – Ethical Issues in Government Grants
Identification of ethical issues in recording a government grant and recommended corrective actions.
Question
Dahn is a Chartered Accountant who works for a large Pharmaceutical Company, Nimely Company Ltd (Nimely), as an Assistant Financial Controller. The Financial Controller of Nimely is also a Chartered Accountant with more than ten years of experience.
During the year, Nimely received a vehicle worth GH¢800,000 from the government to support its operations. According to the Government Official who presented the vehicle to the management of Nimely, the company has been compliant in filing and paying its taxes.
At the year-end, the Financial Controller passed the following entry in the Tally Software of Nimely Company Ltd:
| Dr | Vehicle | GH¢800,000 |
|---|---|---|
| Cr | Income | GH¢800,000 |
Dahn explained to the Financial Controller that the grant should be treated in line with the provisions of IAS 20: Accounting for Government Grants and Disclosure of Government Assistance. It is the company’s policy that such grants should be treated as deferred income.
The Financial Controller agreed that the treatment should have been in line with IAS 20, but mentioned that the entries should not be changed since the current treatment may help them meet their profit targets.
It is Nimely’s policy to depreciate its vehicles at a rate of 25% per annum on a straight-line basis.
Required:
i) Identify the ethical issues involved.
ii) Recommend the appropriate actions to be taken by Dahn.
Find Related Questions by Tags, levels, etc.
- Tags: Ethics, Financial Integrity, Government Grants, IAS 20, Professional Conduct
- Level: Level 2
- Topic: Professional and Ethical Issues in Financial Reporting
- Series: Nov 2024