CHAPTER 32

PROBLEM 1.

On January 1, 2015 an SME received an interest free loan from the national
government for P5 000 000
for a period of 3 years evidenced by a promissory note. The market rate of interest
for similar loans is 5%. There are no future performance conditions attached to the
loan. The present value of 1 at 5% for 3 periods is 0.8638.
What is the grant income?

Answer : 681 000

Face Amount 5 000 000

Present Value of loan ( 5 000 000 x .8638) 4 319 000
Grant Income 681 000

PROBLEM 2

On January 1, 2015, the Philippine government agreed to provide Almond Company

with a P3 000 000 three-year, noninterest bearing note. There are no future
performance conditions attached to the grant. The prevailing rate of interest for a
loan of this type is 10% and the present value of P3 000 000 at 10% for three years
is P2 253 900.

1. What is the grant income for 2015?

a. 3 000 000
b. 2 253 900
c. 746 100
d. 0

Face value 3 000 000

Present Value 2 253 900
Grant Income for 2015 746 100
PROBLEM 3

On January 1, 2015, the city government agreed to provide Cherry Company with a
P5 000 000 three-year, zero interest bearing loan evidenced by promissory note.
There are no future performance conditions attached to the grant. The prevailing
rate of interest for a loan of this type is 10% and the present value of 1 at 10% for
three years is .7513. What is the carrying amount of the note payable on December
31, 2016?

a. 5 000 000
b. 3 380 850
c. 4 132 150
d. 4 545 365

Present Value 1/1/2015 3 756 500

Interest for 2015 375 650
Present Value-12/31/2015 4 132 150
Interest for 2016( 10% x 4 132 150) 413 215
Present value-12/31/2016 4 545 365

Note Payable 5 000 000

Discount on Note Payable 12/31/2016 ( 454 635)
Carrying amount 4 545 365

PROBLEM 4

At the beginning of current year, an SME acquired, free of charge, a non-

transferable nine-year taxi license by way of government grant when the fair
value of the taxi license was P900 000. In accordance with the terms of the
license, the entity must operate at least 10 taxis in a deprived
neighbourhood of the city during that nine-year period. Failure to do so will
result in the taxi license being revoked immediately. What amount of income
from the government grant should be recognized for the current year?

a. 900 000
b. 450 000
c. 100 000
d. 0

Grant Income (900000/9) 100 000

PROBLEM 5
At the beginning of current year, an SME acquired, free of charge, a herd of
100 cattle by way of government grant when the fair value of the herd was
P1 000 000. The average remaining life of the cattle is expected to be 10
years. The grant does not impose future performance conditions on the
entity. What amount of income from government grant should be recognized
for the current year?

a. 1 000 000
b. 500 000
c. 100 000
d. 0

Grant income 1 000 000