Asset grant file: presentation, release and effect on profit or loss

Context

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.

Assignment

Asset grant file

Purpose of the workpaper

For each asset financed in part by a grant (one instance per asset or per presentation), enter the cost, the grant, the useful life and the gross depreciation of the IAS 16 baseline, then compute the annual release (deferred income), the net cost and the reduced depreciation (deduction) and compare the net effect on profit or loss. An asset received as a grant is handled separately (fair value and consideration paid). Justify the presentation chosen: the choice is open to the entity and no amount imposes it.

Questions of the file covered by this workpaper

• Compute the annual release of the deferred income of B.
• Compute the cost of B net of the grant.
• Compute the annual depreciation of B on the net cost.
• Compute the difference in net effect on profit or loss between the two presentations of B.
• Which presentation should be adopted for grant B? Justify.
• Record the four forms of support.

• MemoEngagement letterOpen
• ContractAgreement of support AOpen
• ContractSupport B: weaving machineOpen
• ScheduleSupport C: repayable grant XOpen
• ContractSupport D: government loanOpen
• ExtractReply from the regionOpen
• MemoInternal training planOpen