Below-market or forgivable government loan file: Interest-free loan A

Context

Énergies du Vallon SA (fictitious entity) builds a hydroelectric plant, a qualifying asset, from 1 January to 30 June 20X5 and places it in service on 1 July 20X5; year end 31 December 20X5. A public bank grants it on 1 January 20X5 a loan A of 1,000,000 EUR, interest-free, repayable in full in 3 years; it had granted it in 20X4 a forgivable loan B of 200,000 EUR, at the market rate, whose forgiveness depends on an employment target.

Assignment

Government loan file

Purpose of the workpaper

For each government loan (one instance per loan), describe the terms, enter the proceeds, the contractual flow, the market rate adopted and its support, then compute the initial value of the loan (measurement under IFRS 9, which IAS 20 does not cover), the benefit treated as a grant, the follow-up of the liability and the eligible expenditure net of grants received in cash for a qualifying asset. The market rate is an assumption of the file. Assess the forgiveness conditions of a forgivable loan.

Questions of the file covered by this workpaper

• Compute the initial value of loan A.
• Compute the benefit of loan A.
• Justify the market rate, the boundary with IFRS 9 and the forgiveness of loan B.
• Compute the expenditure eligible for capitalisation of borrowing costs, net of grants received in cash.
• Reconcile the liability of loan A.
• Record loan A, its interest and the forgiveness of loan B.

• ContractContract of loan AOpen
• MemoNote on the market rateOpen
• ScheduleSchedule of loan AOpen
• ExtractConstruction logOpen
• ContractLetter from the public bank (loan B)Open
• MemoAdvisory feesOpen