Reference no: EM132962967

Berkat Bhd acquired an agricultural machine to increase the production of the business. On 1 July 2019, Berkat Bhd received a grant of RM200,000 in order to purchase the agricultural machine, at a cost of RM600,000 for use in its business. It is the policy of Berkat Bhd to write off the grant received against asset acquired. The newly acquired asset will be depreciated over five years. However, on 1 July 2020 the company no longer complied to the condition attached to the grant. Government had required the Berkat Bhd to pay RM300,000. The financial year end is 30 June.

Problem 1. Discuss how the accounting treatment will be different if Berkat Bhd decided to use the alternative method to account for the government grant received.

a) The grant received will reduce the cost of the asset acquired and recognised in the Statement of Financial Position. The depreciation of the asset will be charged based on the reduce amount.
b) The grant received will not affect the cost of the asset recognised in the Statement of Financial Position and depreciation will be charged based on the original amount.
c) The grant received will increase the cost of the asset acquired and recognised in the Statement of Financial Position. The depreciation will be charged based on the initial costs of the asset.
d) The grant received will reduce the cost of the asset acquired and recognised in the Statement of Financial Position. The depreciation will be charged only if the grant received is amortised.

Problem 2. Calculate the amortisation of deferred income that will be recognized in statement of profit or loss if the company adopt the alternative method for the government grant received.

a) RM80,000
b) RM40,000
c) RM120,000
d) RM60,000