Question

Wood Ventures Corp. (WVC) is a publicly accountable enterprise. WVC received two forms of government assistance in 20X7 to assist with the establishment of a value-added wood-processing plant, as follows:  A $300,000 loan was received April 1, 20X7, to assist with the purchase of woodprocessing equipment that cost $500,000. The loan is forgivable providing that WVC continuously employs five additional people for a three-year period.  A $100,000 grant was received May 1, 20X7, to assist with the payment of employee wages to a maximum of 50% of the gross pay of three new employees. Additional details follow:  WVC’s year end is December 31.  The wood-processing equipment was purchased and brought into use on the grant date. WVC depreciates this asset over five years on a straight-line basis. The estimated residual value is nil.  During 20X7, the gross pay to the qualifying new employees totalled $130,000.  WVC expects that it will be able to fully comply with all terms and conditions of the government assistance.  WVC elects to use the gross method to report its government assistance. What is the amount of deferred income that WVC will report on its statement of financial position as at December 31, 20X7, pertaining to the government assistance received during the year? a) $255,000 b) $260,000 c) $275,000 d) $290,000

Answer 1

Answer ; C) $275,000

WVC elects to use the gross method to report its Government assistance:

WVC received two forms of government assistance in 2017 to assist with the establishment of a value-added wood-processing plant,

Loan for purchase of wood processing equipment (cost $500,000)(certain conditions) =   $300,000

Grant was received May 1, 2017(certain conditions) =   $100,000

       

$400,000

WVC expects that it will be able to fully comply with all terms and conditions of the government assistance.

On the basis above , WVC has to be get grant of $100,000 for satisfying conditions, fully in that year as revenue receipt/income.

Grant(assist) for purchase of wood processing equipment is $300,000. WVC has to be get revenue income on that expiry of 3 years.WVC has expired only 9 months for that grant (Based on allocation of Depreciation).

So, Total Grant = $300,000 (36 months)

Revenue (Expired)    = $25,000 (9 months)

  

   Defferred Revenue $275,000

  

THANK YOU !