Compute for the depreciation expense that will be recognized

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ABC Inc. purchased a polishing machine for P6,600,000 on January 1, 2016 and received a government grant of P600,000 towards the capital cost. The machine was to be depreciated on a straight-line basis over 10 years and was estimated to have a residual value of P500,000 at the end of this period.

Required

Problem a. Prepare the journal entries from 2016 to 2017 using the two methods of accounting for government grants.

Problem b. Compute for the income from government grant that will be recognized at the end of 2016 if the grant is initially treated as deferred income.

Problem c. Compute for the depreciation expense that will be recognized at the end of 2016 if the grant is initially treated as reduction of the machine's cost.

Problem d. Compute for the depreciation expense that will be recognized at the end of 2018 if the grant became repayable on January 1, 2018. Assume that the grant is initially treated as reduction of the machine's cost. Prepare the journal entries for 2018.

Reference no: EM132623663

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