a) The company intends to use the grant for the purpose it has been awarded and there is reasonable assurance that the grant will be received (all previously awarded grants have reached their recipients).
Upon issue by the EU authority, the company recognises the investment grant at the exchange rate on December 5th, 20X3:
5000 euros * 3.6 lei/euro = 18,000 lei

18,000 lei                Investment grants receivable        =         Investment grants (Deferred revenue)                      18,000 lei

b) On December 20th, the amount of the grant is transferred to the company’s bank account. In the company’s Cash in Foreign Currency account the amount is exchanged for lei (exchange rate 3.63 lei/euro):

18,150 lei Bank account in foreign currency      =      %                                                            18,150lei

Investment grants receivable            18,000 lei
Exchange gain                                       150 lei

c) The company receives the micro rolling mill and the invoice from its manufacturer, ElectricWerk NV, on December 20th (exchange rate 3.63 lei/euro). The amount payable is translated in lei at the spot exchange rate:
10,000 euros * 3.63 lei/euro = 36,300 lei

36,300 lei       Equipment       =      Current asset suppliers           36,300 lei

d) The equipment is exempted from customs tax, but not from VAT, which must be paid on imported goods at the rate of 19% (36,300 lei * 19%).

6897 lei            VAT deductible          =        Cash            6897 lei

e) Construct SRL immediately pays 10,000 euros to the manufacturer of the equipment.
10,000 euros * 3.63 lei/euro = 36,300 lei

36,300 lei            Non-current asset suppliers       =           Cash in foreign currency              36,300 lei

Extract from the Profit and Loss Account for the year 20X3
Exchange gain               150 lei
Extract from the Balance Sheet as of December 31st, 20X3

f) and g) Construct SRL estimates a useful life of 10 years and a straight-line depreciation pattern. As the rolling mill is ready for use in January 20X4, parallel to accounting for the depreciation of the  rolling mill, the company amortises the investment grant. The Profit and Loss Account of the year 20X4 will thus only show the company’s  contribution towards the cost of the equipment spread over the useful life, that is:

36,300/10–18,000/10 = 1830 lei

3630 lei             Depreciation expense        =         Accumulated depreciation of equipment                 3630 lei

1800 lei                Investment grants (deferred revenue)         =           Revenue from investment grants                1800 lei

Extract from the Profit and Loss Account for the year 20X4 (lei)
Revenue from investment grants                   1800 lei
Depreciation expense                                      (3630) lei

Extract from the Balance Sheet as of December 31st, 20X4 (lei)

Alternatively, under the second option provided by IAS 20, the company could have deducted the grant from the acquisition cost of the asset. Entries a) through e) remain unchanged.
f) A different carrying amount of the asset emerges:

18,000 lei            Investment grants           =          Equipment                    18,000 lei

Extract from the Profit and Loss Account for the year 20X3 (lei)
Exchange gain                                    150 lei
Extract from the Balance Sheet as of December 31st, 20X3 (lei)

g) As the equipment is ready to use in January 20X4, the carrying amount of 18,300 lei (36,300 − 18,000) will be depreciated  from the estimated useful life, resulting in an annual depreciation charge of:
(36,300 − 18,000)/10 = 1830 lei

1830 lei                      Depreciation expense          =          Accumulated depreciation of equipment                         1830 lei

Extract from the Profit and Loss Account for the year 20X4 (lei)
Depreciation expense            (1830) lei
Extract from the Balance Sheet as of December 31st, 20X4 (lei)