In 2020, you had become the Senior Account Executive in Diva Land Berhad. A junior account executive had come to you to ask on few issues regarding government grants.

Junior :	Firstly, I would like to ask you about the treatment of recording the government grants to reimburse the past expenses, I understand that they should be recorded immediately to profit or loss. But I think this is contrary with the matching principles because these expenses are related to past financial periods and not the present financial period. Can you please can you clarify this issue?
	Secondly, is it okay to account for a compensation of past losses/expenses by crediting retained earnings account rather than directly crediting those to Profit or Loss account as a prior year adjustment?

As a Senior Account Executive who has more experience in the accounting treatment of Diva Land Bhd, you are required to provide some explanation for the above questions.

Required:

Explain and justify the above accounting treatment with respect to MFRS 120 on Government Grants.

Answer rating: 100% (QA)

Firstly according to MF RS 120 government grants should be recorded immediately to Profit or Loss Th... View the full answer