Cases
Practical case
Céramiques de la Haute Vallée (a fictitious company) has a 31 December reporting date and measures its property, plant and equipment under the cost model; its policy deducts grants related to assets from their carrying amount. In 20X1, it built an industrial building with its own teams and bought a tunnel kiln from a foreign supplier; the site is commissioned during the year. You are in charge of the year-end file for 20X1 and 20X2: preparation of the workpapers, proposed entries, review of the notes, answers to the reviewer's notes and conclusion of the file.
Your assignment
The file contains documents of varying nature and reliability, some with no accounting effect, a draft note to be reconciled and a missing item obtained during the engagement. Determine the cost of the site, its components and depreciation, the entries and impacts for 20X1 and 20X2, the 20X2 year-end review and the review of the notes; document each judgment, answer the reviewer's notes and conclude on the file.
You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.
Autonomous professional situation
As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.
Document 7
Document 7
16 documents: open each one to read it.
Document 1Memo
Subject: 20X1 and 20X2 year-end of the new production site. Cost model; grants related to assets deducted from the carrying amount. Team: a preparer and a reviewer; workpapers and proposed entries are reviewed before approval by management.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Materials (internal mark-up included) | €2,400,000.00 | |
| Internal mark-up | €120,000.00 | |
| Direct labour | €900,000.00 | |
| Directly attributable overheads | €300,000.00 | |
| Rework of defects | €80,000.00 | |
| Head office administrative costs | €150,000.00 | |
| Staff training | €18,000.00 | |
| Borrowing costs to capitalise (IAS 23) | €100,000.00 | |
| Site payments | €3,480,000.00 | |
| List price | €1,800,000.00 | |
| Trade discount | €90,000.00 | |
| Recoverable VAT | €342,000.00 | |
| Total due to the supplier | €2,052,000.00 | |
| Import duties | €36,000.00 | |
| Transport and handling | €24,000.00 | |
| Assembly and installation | €66,000.00 | |
| Testing | €30,000.00 | |
| Engineer's fees | €21,204.00 | |
| Estimated future dismantling cost | €350,000.00 | |
| Time to dismantling | 15 years | |
| Date capable of operating | October 1 20X1 | |
| Full capacity date | February 1 20X2 | |
| Sales of test output | €45,000.00 | |
| Cost of test output | €38,000.00 | |
| Grant related to the kiln | €300,000.00 | |
| Discount rate | 5% | |
| Structure | €3,100,000.00 | |
| Useful life of the structure | 40 years | |
| Roof | €480,000.00 | |
| Useful life of the roof | 20 years | |
| Useful life of the kiln body | 15 years | |
| Refractory lining | €200,000.00 | |
| Useful life of the lining | 5 years | |
| Gross amount presented | €5,635,559.98 | |
| Accumulated depreciation presented | €61,301.00 | |
| Commitment for the second kiln | €900,000.00 | |
| Parking income | €12,000.00 | |
| Head office furniture | €15,000.00 | |
| Remaining life of the lining | 2 years | |
| Increase in the dismantling liability | €40,000.00 | |
| Recoverable amount of the site | €5,400,000.00 | |
| Proposed insurance premium | €9,500.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
File opening memo
Internal statement of the building construction costs
Loan agreement and treasury note
Kiln supplier invoice
Customs declaration and service invoices
Kiln dismantling study
Commissioning report
Regional grant agreement
Treasury answer on the discount rate
Technical breakdown of the site
Draft 20X1 note
Temporary parking agreement
Head office furniture invoice
Engineer's memo at the 20X2 year-end
Group impairment test (IAS 36)
Comprehensive insurance quote
Organise your work freely: deal with each point, then argue your conclusion.
Task 1Analysis
Analyse the file: accounting issues, relevant documents and items with no effect, missing information and workpaper plan.
Task 2Calculation
Determine the cost of the self-constructed building and the expenditure to recognise as an expense.
Part 1 · Calculation
Determine the cost of the self-constructed building and the expenditure to recognise as an expense.
Result: Expenditure recognised as an expense
Task 3Journal entries
Propose the entries for the construction, the expenses and the transfer to property, plant and equipment on commissioning.
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 4Calculation
Determine the initial cost of the kiln, including the discounted dismantling cost.
Part 1 · Calculation
Determine the initial cost of the kiln, including the discounted dismantling cost.
Result: Initial cost of the kiln
Task 5Professional judgement
Decide the date capitalisation ceases and depreciation starts, and the treatment of the test sales, the parking income and the grant.
Task 6Journal entries
Propose the entries for the kiln acquisition, the grant, the test sales and the parking income.
Part 1 · Journal entry · Journal entries
Entry 1 of 4
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Line 4
Line 5
Part 2 · Journal entry · Journal entries
Entry 2 of 4
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 4
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Line 4
Part 4 · Journal entry · Journal entries
Entry 4 of 4
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 7Calculation
Break the site down into components and check that the breakdown agrees with the cost of the site.
Part 1 · Calculation
Break the site down into components and check that the breakdown agrees with the cost of the site.
Result: Annual depreciation of the site
Task 8Calculation
Calculate the 20X1 depreciation by component.
Part 1 · Calculation
Calculate the 20X1 depreciation by component.
Result: 20X1 depreciation of the site
Task 9Journal entries
Propose the 20X1 depreciation entry.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Line 4
Line 5
Line 6
Line 7
Line 8
Task 10Effects on the financial statements
What is the impact of the proposed entries on the 20X1 financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Notes
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 11Calculation
Reconcile the draft 20X1 note and review the disclosures.
Part 1 · Calculation
Reconcile the draft 20X1 note and review the disclosures.
Result: Difference on accumulated depreciation
Task 12Calculation
Calculate the 20X2 depreciation.
Part 1 · Calculation
Calculate the 20X2 depreciation.
Task 13Calculation
20X2 year-end review: estimates and dismantling liability; calculate the prospective effect on the lining.
Part 1 · Calculation
20X2 year-end review: estimates and dismantling liability; calculate the prospective effect on the lining.
Result: Revised charge for the lining from 20X3
Task 14Calculation
20X2 indication of impairment: compare the carrying amount of the site with the result of the IAS 36 test.
Part 1 · Calculation
20X2 indication of impairment: compare the carrying amount of the site with the result of the IAS 36 test.
Result: Impairment loss for 20X2
Task 15Journal entries
Propose the 20X2 entries: depreciation and revision of the dismantling liability.
Part 1 · Journal entry · Journal entries
Entry 1 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 16Effects on the financial statements
What is the impact of the proposed entries on the 20X2 financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Notes
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 17Conclusion
Conclude on the file: positions taken, assumptions, open points and completion.
Points raised during the review of this file: read them as the preparer would.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 26).
Document this file
These working papers use the data and results of this case.
Normative references