17
SOLUTION EXERCICE 2.7. MACHINING plc
Capital Grant
January 2, 20XX
Capital Grant
Communication.
The grant has a
condition
300.000 (4708) Grants receivable
CURRENT ASSET
to
(172) Non current payables
convertible into grants
NON CURRENT LIABILITY
300.000
Condition: The grant will be repaid over a period of two years unless the company increases its productivity to a
certain level.
March 2, 20XX
Cash Flow entrance
300.000 (57) Cash to (4708) Grants receivable 300.000
During the year
20XX
Non current asset
purchase
500.000 (21) Property, Plant and
Equipment:
212 Plant Machinery
213 Machinery
214 Tools
215 Other installations
to (523) Short-term debt with
fixed asset suppliers
or
(57) Cash
500.000
Payment during
the year 20XX
500.000 (523 Short-term debt with
fixed asset suppliers)
to (57) Cash or bank 500.000
It is demostrated
that the grant’s
condition is fulfilled
300.000 (172) Non current payables
convertible into grants
NON CURRENT LIABILITY
(940) Income from
government capital grants
300.000
End of year 31 December
Closing 8 & 9
accounts with
Equity accounts
300.000 (940) Income from
government capital grants
to (130) Government capital
grants
EQUITY
300.000
The case information indicates that: the improvements do not extend the livespan of these assets.
But there is an increase of productivity:
3rd Specific standards on property, plant and equipment
f) Costs incurred to renovate, enlarge or improve items of property, plant and equipment which increase
capacity or productivity or extend the useful life of the asset shall be capitalised as part of the cost of the
related asset. The carrying amount of items that are replaced shall be recognised.
Calculation of the economic depreciation: (500.000€ - 0€) / 10years = 50.000€ annual expense in the P&L account
Calculation of the grant transfer to the P&L account: 300.000€ / 10years = 30.000€ annual income in the P&L
account
Transfer of the capital grant to P&L account: 300.000 / 10years = 30.000€ annual incomeEnd of year 31
December 20xx+1
Non current asset
Economic
Depreciation
50.000 (681) Depreciation of
property, plant and
equipment
P&L: Expense
to
(281) Accumulated
depreciation of property, plant
and equipment
BALANCE SHEET
50.000
Transfer to P&L
account as an
income
30.000 (840) Transfer of
government capital grants
to
(746) Capital grants,
donations and bequests taken
to income
P&L: Income
30.000
Closing 8 & 9
accounts with
Equity accounts
30.000 (130) Government capital
grants
EQUITY
to (840) Transfer of government
capital grants
30.000