CAF-1 · Chapter 1 · Question 1 of 15
The local government constructs a new alternate highway connecting an industrial zone to the main port, which reduces transit times and saves Omega Ltd Rs. 5 million annually in freight costs. According to IAS 20, how should Omega Ltd account for this infrastructure improvement?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Ignore it, as it is government assistance that affects general trading conditions.
Explanation
According to IAS 20, government actions that merely improve the general trading environment, such as the provision of public infrastructure (like roads or irrigation networks), do not meet the definition of government grants and should be ignored in the financial statements.
More IAS 20 Government Assistance and Grants MCQs
- Q3Gamma Ltd received a grant of Rs. 30 million on the condition of employing 50 local residents for three years. In year 2, the workforce…
- Q4A local government grants Omega Corp a parcel of land at no cost, provided it builds a facility there. Under IAS 20, how can this…
- Q5Under IAS 20, a forgivable loan from the government is treated as a government grant when:
- Q6How should the repayment of a government grant related to income be accounted for?
- Q7If an entity receives a grant related to an asset and accounts for it by deducting the grant from the asset's carrying amount, how is the…