Government Grants

FR – L2 – Q29 – Government Grants

Show how Karla Ltd's three grants are reflected in financial statements for year ended 30 June Year 2, with options per IAS 20.

Question

During the year ended 30 June Year 2, Karla Ltd received three grants, the details of which are set out below.
(1) On 1 September, a grant of GH₵40,000 from local government. This grant was in respect of training costs of GH₵70,000 which Karla Ltd had incurred.
(2) On 1 November Karla Ltd bought a machine for GH₵350,000. A grant of GH₵100,000 was received from central government in respect of this purchase. The machine, which has a residual value of GH₵50,000, is depreciated on a straight-line basis over its useful life of five years.
(3) On 1 June, a grant of GH₵100,000 from local government. This grant was in respect of relocation costs that Karla Ltd had incurred moving part of its business from outside the local area. The grant is repayable in full unless Karla Ltd recruits ten employees locally by the end of Year 2. Karla Ltd is finding it difficult to recruit as the local skill base does not match the needs of this part of the business.

Required
Show how the above transactions should be reflected in the financial statements of Karla Ltd for the year ended 30 June Year 2. Where any accounting standards allow a choice you should show all possible options.

Answer

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Tags: Deferred Income, Depreciation, Financial Statements, Government Grants, IAS 20, Relocation Costs, Training Costs
Level: Level 2

Topic: Government Grants

MA – L2 – Q13 – Cash budgets and master budgets

Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.

Question

On 31st March 202X, the bank balance standing in the books of the Department of Commerce was GHC 900,000. The Department provides you with the information below.

Month	IGF GHC000	GoG releases GHC000	Donation GHC000	Wages and salaries GHC000	Goods and services GHC000	Office equipment GHC000	Advances GHC000
Jan	4,100	2,000		1,200	1,000		50
Feb	900	500		320	300		40
March	1,300	500	400	320	400		50
April	1,200	600	200	620	320		40
May	1,000	600		550	220		60
June	1,000	600	200	660	420	500	50

Relevant notes to the data:
(i) The Internally Generated Funds (IGF) is made up of 70% cash and 30% receivables. The receivables are collectible as follows: 60% in the month following the service delivery and the remaining 40% in the second month following the service delivery. The department is entitled to retention of 80% of IGF collected and the remaining 20% is payable into the National Treasury Fund in the month in which it was collected.
(ii) The department also enjoys a budget allocation from the Government of Ghana (GoG) and the government promises to make payments according to the schedule shown.
(iii) The department anticipates that it will receive some donations as scheduled above. It is expected that 30%, 40%, and 70% of donations in March, April, and June respectively will be in cash. The remaining portions are expected to come in the form of materials.
(iv) Wages and salaries will be paid at the end of each month.
(v) Goods and services are paid for one month in arrears.
(vi) The office equipment acquired in January will be paid for in the third month following the purchase and the one to be acquired in June will be paid for immediately.
(vii) The office equipment is to be depreciated at 2.5% of cost per month.
(viii) Staff of the department are granted advances under an advance scheme approved by the government. The advances will be recovered in four equal instalments beginning from the month following the month in which the advance is granted.

Required:
Prepare a cash budget for the department for the Second Quarter of 202X showing clearly the cash forecast for individual months and the total for the quarter as a whole.

Answer

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Tags: Advances, Budgetary Control, Cash Budgeting, Cash Flow, Consolidated Fund, Donations, Government Grants, Internally Generated Funds, Payments, Receipts
Level: Level 2

Topic: Cash budgets and master budgets

Tag (SQ): Government Grants

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FR – L2 – Q29 – Government Grants

Show how Karla Ltd's three grants are reflected in financial statements for year ended 30 June Year 2, with options per IAS 20.

MA – L2 – Q13 – Cash budgets and master budgets

Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.

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Tag (SQ): Government Grants

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FR – L2 – Q29 – Government Grants

Show how Karla Ltd's three grants are reflected in financial statements for year ended 30 June Year 2, with options per IAS 20.

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MA – L2 – Q13 – Cash budgets and master budgets

Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.

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