1 January 2018, Sharp Limited (Sharp) applied for a government grant of $20 million to finance the acquisition of a specialized machine for $40 million. The grant was subject to an inspection by government officials on the machine and an operating license would be issued upon the satisfactory inspection. Sharp obtained the license on 1 April 2018 but the funds were not released by the government until 1 July 2018. Sharp purchased the machine and started using it on 1 October 2018. The machine is depreciated at 20% per annum on cost using straight-line basis. On 1 January 2019, Sharp has to pay back $10 million to the government due to non- fulfillment of the required conditions of using the machine. Sharp prepares its financial statements at 31 December each year. Required: (a) With reference to HKAS 20, on which date should Sharp recognize the government grant? Explain. (b) Sharp recognizes the government grant as deferred income. Prepare the accounting journal entries with dates and narratives with respect to the machine and the government grant transactions in 2018 and 2019. (c) Prepare extracts of the statement of financial position as at 31 December 2019 and the statement of profit or loss and other comprehensive income for the year ended 31 December 2019 relating to the machine and government grant.
On 1 January 2018, Sharp Limited (Sharp) applied for a government grant of $20 million to finance the acquisition of a specialized machine for $40 million. The grant was subject to an inspection by government officials on the machine and an operating license would be issued upon the satisfactory inspection. Sharp obtained the license on 1 April 2018 but the funds were not released by the government until 1 July 2018. Sharp purchased the machine and started using it on 1 October 2018. The machine is
On 1 January 2019, Sharp has to pay back $10 million to the government due to non- fulfillment of the required conditions of using the machine.
Sharp prepares its financial statements at 31 December each year.
Required:
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(a) With reference to HKAS 20, on which date should Sharp recognize the government grant? Explain.
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(b) Sharp recognizes the government grant as deferred income. Prepare the accounting
journal entries with dates and narratives with respect to the machine and the government grant transactions in 2018 and 2019. -
(c) Prepare extracts of the statement of financial position as at 31 December 2019 and the statement of profit or loss and other comprehensive income for the year ended 31 December 2019 relating to the machine and government grant.
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