Cases
Practical case
Hélios Matériaux SA (fictitious entity) builds in 20X5 two qualifying assets: a kiln, financed by a specific loan of 1,500,000 EUR and by an equipment grant of 300,000 EUR, with an interruption of two months, and a warehouse, financed by the general borrowings. The file takes the two assets through to the financial statements of 20X5 and 20X6 (cumulative effects), 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 assets; compute for the kiln the actual costs, the investment income and the eligible costs; compute for the warehouse the weighted expenditure, the capitalisation rate, the eligible costs and the cap; judge the suspension and the end date; compute the eligible expenditure, the inclusion period, the cost, the depreciation and the difference in net effect under each presentation of the grant, and compare the carrying amount with the recoverable amount; record and present the effect; state the disclosures; 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 of a capitalised project of Hélios Matériaux SA (fictitious entity, ceramic tiles) for 20X5 and 20X6 (cumulative effects). Two qualifying assets are built in 20X5: a kiln, financed by a specific loan and an equipment grant, and a warehouse, financed by the general borrowings. The amounts, rates and dates are data of the file; the presentation of the grant is a choice of the entity.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Principal of the specific loan of the kiln | €1,500,000.00 | |
| Rate for the inclusion period (6% × 8 / 12) | 4% | |
| Borrowed funds not spent and temporarily invested | €500,000.00 | |
| Investment rate for the period (3% × 4 / 12) | 1% | |
| Borrowing costs from 1 March to 31 December | €75,000.00 | |
| Borrowing costs of the suspension period | €15,000.00 | |
| Duration from the start to the end of inclusion | 10 months | |
| Duration of the extended suspension | 2 months | |
| Payments on the kiln | €2,100,000.00 | |
| Materials taken from inventories for the kiln | €100,000.00 | |
| Total expenditure on the kiln before the grant | €2,200,000.00 | |
| Equipment grant for the kiln | €300,000.00 | |
| Planned annual release of the grant | €30,000.00 | |
| Useful life of the kiln | 10 years | |
| Residual value of the kiln | €0.00 | |
| Recoverable amount of the kiln | €2,400,000.00 | |
| Borrowing costs of the year on the general borrowings | €400,000.00 | |
| Weighted average of the general borrowings outstanding | €5,000,000.00 | |
| First expenditure on the warehouse, weighted | €700,000.00 | |
| Second expenditure on the warehouse, weighted | €300,000.00 | |
| Insurance of the kiln 20X6 | €17,000.00 |
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
Specific loan of the kiln
Site log of the kiln
Expenditure, grant and recoverable amount of the kiln
General borrowings and expenditure on the warehouse
Reply from the technical department
Insurance contract of the kiln
Organise your work freely: deal with each point, then argue your conclusion.
Task 1Analysis
Are the kiln and the warehouse qualifying assets?
Task 2Missing information
What information is missing to settle the end date of inclusion for the kiln?
Task 3Calculation
Compute the actual borrowing costs of the inclusion period of the kiln.
Part 1 · Calculation
Compute the actual borrowing costs of the inclusion period of the kiln.
Task 4Calculation
Compute the investment income on the temporary investment.
Part 1 · Calculation
Compute the investment income on the temporary investment.
Task 5Calculation
Compute the eligible borrowing costs of the kiln.
Part 1 · Calculation
Compute the eligible borrowing costs of the kiln.
Task 6Calculation
Compute the weighted average expenditure on the warehouse.
Part 1 · Calculation
Compute the weighted average expenditure on the warehouse.
Task 7Calculation
Compute the capitalisation rate of the general borrowings.
Part 1 · Calculation
Compute the capitalisation rate of the general borrowings.
Task 8Calculation
Compute the eligible costs of the warehouse.
Part 1 · Calculation
Compute the eligible costs of the warehouse.
Task 9Calculation
Apply the cap at the borrowing costs incurred.
Part 1 · Calculation
Apply the cap at the borrowing costs incurred.
Task 10Missing information
What information is missing to adopt the weighted average of the general borrowings?
Task 11Professional judgement
Does the two-month interruption suspend inclusion for the kiln? Justify.
Task 12Calculation
Compute the eligible expenditure of the kiln, net of the grant.
Part 1 · Calculation
Compute the eligible expenditure of the kiln, net of the grant.
Task 13Calculation
Compute the inclusion period of the kiln.
Part 1 · Calculation
Compute the inclusion period of the kiln.
Task 14Professional judgement
On what date does inclusion end for the kiln? Justify.
Task 15Calculation
Compute the cost of the kiln under each presentation of the grant.
Part 1 · Calculation
Compute the cost of the kiln under each presentation of the grant.
Result: Cost of the kiln with the deduction
Task 16Calculation
Compute the annual depreciation of the kiln under each presentation.
Part 1 · Calculation
Compute the annual depreciation of the kiln under each presentation.
Result: Annual depreciation with the deduction
Task 17Calculation
Compute the difference in net effect on profit or loss between the two presentations.
Part 1 · Calculation
Compute the difference in net effect on profit or loss between the two presentations.
Task 18Calculation
Compare the carrying amount of the kiln with its recoverable amount.
Part 1 · Calculation
Compare the carrying amount of the kiln with its recoverable amount.
Task 19Professional judgement
Which presentation should be adopted for the grant of the kiln? Justify.
Task 20Journal entries
Record the borrowing costs, the grant, the transfer, the depreciation and the release.
Part 1 · Journal entry · Journal entries
Entry 1 of 9
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 9
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 9
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 9
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 9
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 6 · Journal entry · Journal entries
Entry 6 of 9
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 7 · Journal entry · Journal entries
Entry 7 of 9
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 8 · Journal entry · Journal entries
Entry 8 of 9
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 9 · Journal entry · Journal entries
Entry 9 of 9
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 21Effects 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 22Analysis
Which disclosures should be given on the borrowing costs included and the capitalisation rate?
Task 23Conclusion
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 / 33).
Document this file
These working papers use the data and results of this case.
Normative references