Covid-19 allowances: how to treat them in the accounts?
September 2021 – In recent months, many companies have received assistance from the federal and regional authorities. In order to be able to resume their activities after the mandatory closure period, they have also had to incur additional costs. How should compensation and additional costs be treated in the accounts? A recent opinion of the CNC sheds light on this subject.
Exceptional income and expenses
The common thread of the CNC's opinion of 23 June 2021 (2021/11) is Article 3:10 of the Royal Decree implementing the Companies and Associations Code: "Valuations must meet the criteria of prudence, fairness and good faith."
For example, if you have received compensation of 5,000 euros in the Flemish Region, this sum should be recorded under "Miscellaneous operating income" (accounts 743 to 749) or "Other non-recurring operating income" (accounts 764 to 768). This is because it is not "normal" revenue.
The same applies to the expenditure side. If you have incurred exceptional expenses, such as the purchase of masks and hydroalcoholic gel, reorganisation of the workplace, installation of Plexiglas, etc., these costs are in principle recorded either in account 61 "Miscellaneous services and goods" or in accounts 664 to 667 "Other non-recurring operating expenses".
These costs can be taken in one go, as they are "not significant amounts". However, if the value of your investments is higher, because you have adapted to the new working situation (e.g. you have installed efficient audiovisual equipment in the meeting rooms), these expenses can be capitalised and depreciated. However, the investments must be of 'lasting' use to the company's business in the coming years.
If you have incurred a penalty or compensation because the coronavirus crisis has prevented you from meeting certain obligations, these penalties or compensation must be charged to the income statement, to an account 643 to 648 "Miscellaneous operating expenses" or 664 to 667 "Other non-recurring operating expenses", in the year in which the debt is incurred.
Recurring charges
What about recurrent costs such as rent, water, gas and electricity? In principle, these are recurring operating expenses since they result from the usual activity of the business. However, during the period of mandatory closure, the business had no activity. In the opinion of the CNC, the administrative body can therefore decide to consider the expenses incurred during this period of mandatory closure as non-recurring operating expenses.
Stocks
If stocks have become unusable due to the compulsory closure (e.g. foodstuffs), you must make an adjustment to the purchase price of the goods, supplies and finished products in order to bring their book value into line with their market value at the year-end.
In the case of work in progress and contracts in progress, recognise a write-down if their cost plus the estimated costs still to be incurred exceeds the net selling price or contract price, respectively, at the year-end.
Fixed assets
In its opinion, the CNC also refers to the temporary cessation of operations which has resulted in many fixed assets (buildings, machinery and equipment necessary for the operation of the business) no longer being used by some companies. An adaptation of the valuation rules that apply to such fixed assets may be necessary. Depreciation schedules may need to be adjusted.
Finally, the health crisis may also have led to a restructuring. Expenses incurred in connection with a restructuring should be capitalised if they are expenses relating to a substantial change in the structure or organisation of an enterprise and if the restructuring has a favourable impact on the profitability of the enterprise.
Principle of prudence, reconciliation and realisation
The CNC opinion is a pure application of the principle of prudence, reconciliation and realisation. However, it is interesting because it translates this principle into examples of concrete situations that many entrepreneurs unfortunately face.
