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What amount should be reported as deferred income

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Q1. On January 1, 2020, Pharoah Company purchased a varnishing machine for P6,000,000. The entity received a government grant of P540,000 in respect of this asset.

The accounting policy is to depreciate the asset over 4 years on a straight line basis and to treat the grant as deferred income.

What amount should be reported as deferred income on December 31, 2021?

a. 270,000

b. 405,000

c. 135,000

d. 540,000

Q2. Quell Company purchased a varnishing machine for P3,000,000 on January 1, 2020. The entity received a government grant of P500,000 in respect of this asset.

The accounting policy is to depreciate the asset over 4 years on ty a straight line basis and to treat the grant as deferred income.

1. What is the carrying amount of the asset on December 31, 2020?

a. 3,000,000

b. 2,250,000

c. 2,500,000

d. 1,875,000

2. What amount of income from the government grant is recognized for 2020?

a. 500,000

b. 125,000

c. 250,000

d. 0

Reference no: EM132785785

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