Below-market or forgivable government loan file

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

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 D.
• Compute the benefit of loan D.
• Justify the market rate and the boundary with IFRS 9.
• Compute the eligible expenditure of the extension, net of grants received in cash.
• Reconcile the liability of loan D.
• 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