Cases
Practical case
Verdalis Textiles SA (fictitious entity, year end 31 December 20X5) has received or is asked to repay four forms of government support: a training programme grant (A), an equipment grant for a machine (B), the repayment of an old equipment grant (C) and an interest-free government loan that finances the extension of a plant (D). The file takes the four forms of support through to the financial statements, with the documents, the judgements, the open points and the review. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.
Your assignment
Build the file: characterise the four forms of support and assess the reasonable assurance; compute the share of 20X5 of support A; compare the two presentations of grant B and justify the choice; deal with the repayment of grant X; measure loan D, its benefit, the boundary with IFRS 9 and the eligible expenditure of the extension; record and present the effect; state the disclosures; address the reviewer's notes; conclude.
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.
7 documents: open each one to read it.
Document 1Memo
Engagement letter: file for the review of the public support of Verdalis Textiles SA (fictitious entity) for the year ended 31 December 20X5. Four forms of support are to be characterised, recorded, presented and documented: a training programme (A), a weaving machine (B), the repayment of an old grant (C) and a government loan (D). The amounts, rates and dates are data of the file; the presentation choices are those of the entity.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Grant of support A | €90,000.00 | |
| Budgeted costs of 20X5 (support A) | €100,000.00 | |
| Budgeted costs of 20X6 (support A) | €120,000.00 | |
| Budgeted costs of 20X7 (support A) | €80,000.00 | |
| Cost of machine B | €600,000.00 | |
| Grant for machine B | €120,000.00 | |
| Useful life of machine B | 8 years | |
| Residual value of machine B | €0.00 | |
| Gross annual depreciation of machine B (IAS 16 baseline) | €75,000.00 | |
| Repayment required for grant X | €80,000.00 | |
| Deferred income of X at the opening | €65,000.00 | |
| Release of X in 20X5 | €15,000.00 | |
| Deferred income of X not yet released before the repayment | €50,000.00 | |
| Deferred income of X reported after the repayment | €0.00 | |
| Proceeds received from loan D | €500,000.00 | |
| Flow repayable at maturity of loan D | €500,000.00 | |
| Market rate adopted (assumption of the file) | 5% | |
| Term of loan D | 2 years | |
| Expenditure incurred on the extension | €700,000.00 | |
| Grant received in cash for the extension | €0.00 | |
| Interest of 20X5 at the effective rate, included in the extension | €22,675.74 | |
| Liability of loan D reported at the closing date | €476,190.48 | |
| Internal training plan 20X6 | €25,000.00 |
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.
Engagement letter
Agreement of support A
Support B: weaving machine
Support C: repayable grant X
Support D: government loan
Reply from the region
Internal training plan
Organise your work freely: deal with each point, then argue your conclusion.
Task 1Analysis
Characterise each of the four forms of support.
Task 2Missing information
What information is missing to assess the condition of support B?
Task 3Professional judgement
Does reasonable assurance exist for supports A and B? Justify.
Task 4Calculation
Compute the share of 20X5 of grant A.
Part 1 · Calculation
Compute the share of 20X5 of grant A.
Task 5Calculation
Compute the annual release of the deferred income of B.
Part 1 · Calculation
Compute the annual release of the deferred income of B.
Task 6Calculation
Compute the cost of B net of the grant.
Part 1 · Calculation
Compute the cost of B net of the grant.
Task 7Calculation
Compute the annual depreciation of B on the net cost.
Part 1 · Calculation
Compute the annual depreciation of B on the net cost.
Task 8Calculation
Compute the difference in net effect on profit or loss between the two presentations of B.
Part 1 · Calculation
Compute the difference in net effect on profit or loss between the two presentations of B.
Task 9Professional judgement
Which presentation should be adopted for grant B? Justify.
Task 10Calculation
Compute the cumulative releases of X to be expensed on repayment.
Part 1 · Calculation
Compute the cumulative releases of X to be expensed on repayment.
Task 11Calculation
Reconcile the deferred income of X.
Part 1 · Calculation
Reconcile the deferred income of X.
Result: Reconciliation difference of the deferred income of X
Task 12Calculation
Compute the initial value of loan D.
Part 1 · Calculation
Compute the initial value of loan D.
Task 13Calculation
Compute the benefit of loan D.
Part 1 · Calculation
Compute the benefit of loan D.
Task 14Missing information
What information is missing to adopt the market rate?
Task 15Professional judgement
Justify the market rate and the boundary with IFRS 9.
Task 16Calculation
Compute the eligible expenditure of the extension, net of grants received in cash.
Part 1 · Calculation
Compute the eligible expenditure of the extension, net of grants received in cash.
Task 17Calculation
Reconcile the liability of loan D.
Part 1 · Calculation
Reconcile the liability of loan D.
Result: Reconciliation difference of the liability of loan D
Task 18Journal entries
Record the four forms of support.
Part 1 · Journal entry · Journal entries
Entry 1 of 7
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 7
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 7
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 4 · Journal entry · Journal entries
Entry 4 of 7
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 5 · Journal entry · Journal entries
Entry 5 of 7
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 6 · Journal entry · Journal entries
Entry 6 of 7
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 7 · Journal entry · Journal entries
Entry 7 of 7
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 19Effects on the financial statements
What is their effect on the 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
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 20Analysis
Which disclosures should be given on the support?
Task 21Conclusion
Write the conclusion of the file.
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 / 29).
Document this file
These working papers use the data and results of this case.
Normative references