Reference no: EM131774419
Question - ABC Ltd operates in several different countries. The company received government financial assistances in 2009.
a) The HKSAR government will provide a grant of $36,000 which covers the total initial establishment costs of a new training programming for company staff members. The grant is depending on the company's expansion of its existing training unit and the increase in the number of trainees in direct production areas within the factory by 10% in each financial year. The increased number of trainees would have to be sustained for at least three years.
The grant was received in 1st February 2010. Expected costs of the complete programme are $60,000 of which $20,000 initial establishment costs has been incurred to date.
Actual and projected numbers of trainees are:
Years ending 31 March
Trainee in manufacturing process 2010 2011 2012 2013
A 14 15 14 15
B 10 14 16 16
C 17 21 20 20
D 5 3 3 3
46 53 53 54
Provide accounting journal entries related to this government grant and extracts of the statement of financial position and income statement for the government grant for the year ended 31 March 2010. Provide relevant disclosures in accordance with HKAS 20.
Show your workings.
b) During a meeting with the accounting manager, the chair of ABC Ltd said: 'The accounting treatments on government grants under the accounting standard are conceptually wrong! It misstates the assets and liabilities of our company since we must comply with the requirements and there is no chance for repaying the government grant. The grant should be credited to our profit or loss in total in this financial year. Am I correct?'
Suppose you are the accounting manager, write a report to the chair to explain whether his view is correct or not.