Dambai Ltd (Dambai) is a large manufacturing company. Wherever possible, it structures its operations to take advantage of any financial assistance available from national and regional authorities.
During the year, Dambai decided to relocate some of its other operations to a regional development area, which offers attractive labour costs and tax incentives. The regional government agreed to contribute GH¢200,000 as a result of Dambai setting up in the regional development area. There are no particular conditions as to what the money should be spent on. The cash was received on 1 August 2019.
Required:
In accordance with IAS 20: Accounting for Government Grants and Disclosure of Government Assistance explain the financial reporting treatment of the above in the financial statements of Dambai for the year ended 31 December 2019. (4 marks)
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- The contribution of GH¢200,000 by the regional government is not dependent on any particular activities of the entity.
- The GH¢200,000 should be credited directly to profit or loss as it does not compensate specific expenses.
Recognition of the GH¢200,000 Government Grant – 2 marks
Treatment of the GH¢200,000 in Profit or Loss – 2 marks