The Use of Double-Entry and Accounting Systems — ACCA Practice Question 03

How to approach this question

Identify the asset received (Cash) and the nature of the obligation. Since the grant is restricted and unspent, it represents an obligation (Deferred Income).

Full Answer

B.Debit Cash $50,000, Credit Deferred Income (Liability) $50,000✓ Correct

When a restricted grant is received and the conditions attached to it have not yet been met (e.g., purchasing the equipment), the income cannot be recognized immediately. It must be deferred as a liability. The entry is Dr Cash (increasing asset) and Cr Deferred Income (increasing liability).

Common mistakes

Recognizing the grant immediately as revenue in the statement of profit or loss.

Section A

GlobalHealth NGO receives a restricted cash grant of $50,000 specifically designated for purchasing medical equipment. The equipment has not yet been purchased.

What is the correct double-entry journal to record the receipt of this grant?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

More questions from this exam

Section A GlobalHealth NGO receives a restricted cash grant of $50,000 specifically designated for purchasing medical equipment. The equipment has not yet been purchased. What is the correct double-entry journal to record the receipt of this grant?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

More questions from this exam

Section A

GlobalHealth NGO receives a restricted cash grant of $50,000 specifically designated for purchasing medical equipment. The equipment has not yet been purchased.

What is the correct double-entry journal to record the receipt of this grant?