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Chapter 26 – Solutions

Multiple Choice Solutions​

  1. b) The PCN is mandatory for all businesses operating in Luxembourg under the Commercial Code.

  2. c) The PCN has seven main account classes (1-7).

  3. b) Class 4 contains third-party accounts, including customers (Account 411).

  4. b) Account 701 represents sales of goods (Class 7 - Revenue Accounts).

  5. c) Account 44551 is used for input VAT recoverable (TVA récupérable).

  6. b) Sub-accounts can be used for detailed tracking while maintaining PCN compliance.

  7. c) PCN 2020 is the current standard.

  8. b) Class 2 contains fixed assets.

  9. a) Purchasing inventory on credit: Debit 601 (Purchases), Credit 401 (Suppliers).

  10. c) PCN compliance is required for financial statements, RCS filings, and tax returns.

Question Solutions​

Question 1​

The PCN (Plan Comptable Normalisé) is Luxembourg's mandatory standardized accounting framework. It ensures consistency, transparency, and compliance across all businesses. It's mandatory because:

  • Required by Luxembourg Commercial Code
  • Ensures comparability of financial information
  • Supports regulatory compliance (RCS, tax authorities)
  • Enables efficient electronic filing (eCDF, FAIA)

Question 2​

Class 1 - Capital, Provisions, Financial Debts:

  • Example: Account 101 (Share capital)

Class 2 - Fixed Assets:

  • Example: Account 218 (Machinery and equipment)

Class 3 - Inventory:

  • Example: Account 371 (Finished goods)

Class 4 - Third-Party Accounts:

  • Example: Account 411 (Customers)

Class 5 - Financial Accounts:

  • Example: Account 512 (Bank account)

Class 6 - Expense Accounts:

  • Example: Account 621 (Salaries)

Class 7 - Revenue Accounts:

  • Example: Account 701 (Sales of goods)

Question 3​

The PCN account numbering system uses a hierarchical structure:

  • First digit(s) indicate the class (1-7)
  • Subsequent digits indicate sub-classifications
  • Sub-accounts use decimal notation (e.g., 411.001)

Examples:

  • 101: Class 1, share capital
  • 218: Class 2, machinery and equipment
  • 411: Class 4, customers
  • 701: Class 7, sales of goods

Question 4​

Cash Sale with VAT (17%):

Transaction: Sell €500 of goods for cash

PCN Mapping:

  • Debit Account 530 (Cash): €585.00
  • Credit Account 701 (Sales of goods): €427.35
  • Credit Account 44581 (VAT on sales): €72.65

Calculation:

  • Sales amount: €500 Ă· 1.17 = €427.35
  • VAT: €500 - €427.35 = €72.65
  • Total cash received: €500.00

Question 5​

Account 44551 (Input VAT Recoverable):

  • Used for VAT paid on purchases
  • Appears on the debit side when purchasing
  • Can be recovered/credited against VAT collected
  • Example: VAT on equipment purchase, inventory purchase

Account 44581 (VAT on Sales):

  • Used for VAT collected on sales
  • Appears on the credit side when selling
  • Must be paid to tax authorities
  • Example: VAT on sales of goods, services

Net VAT Payable:

  • Account 44571 (VAT Payable) = 44581 - 44551
  • If positive: VAT owed to authorities
  • If negative: VAT refundable

Question 6​

Businesses can customize their chart of accounts by:

  • Using sub-accounts for detailed tracking (e.g., 411.001, 411.002)
  • Creating custom account categories within PCN structure
  • Documenting all custom accounts
  • Maintaining PCN compliance for main accounts

Example: Restaurant with customer segmentation:

  • 411.001: Retail customers
  • 411.002: Wholesale customers
  • 411.003: Online customers

Question 7​

Key PCN Compliance Requirements:

  1. Use PCN 2020 account structure
  2. Maintain all seven classes (1-7)
  3. Use standard PCN account numbers for main accounts
  4. Prepare financial statements using PCN classifications
  5. File RCS reports with PCN-compliant accounts
  6. Reference PCN accounts in tax returns
  7. Maintain documentation of account structure
  8. Use PCN-compliant accounting software

Question 8​

Consequences of Non-Compliance:

  • RCS filing rejection
  • Tax authority penalties and fines
  • Audit complications and delays
  • Difficulty obtaining bank financing
  • Legal consequences under Commercial Code
  • Loss of credibility with stakeholders

Question 9​

Sub-accounts allow detailed tracking within main PCN accounts:

  • Format: Main account.sub-account (e.g., 411.001)
  • Maintains PCN compliance
  • Enables detailed analysis
  • Must be documented

Example:

  • 411: Customers (main account)
  • 411.001: Customer A
  • 411.002: Customer B
  • 411.003: Customer C

Question 10​

PCN 2020 Improvements over PCN 2011:

  • Enhanced digital integration (eCDF, FAIA)
  • Better IFRS alignment for larger entities
  • More granular account classifications
  • Enhanced SME guidance
  • Improved VAT account structure
  • Support for electronic filing requirements

Note: Complete solutions for Problems Set A, Set B, and Comprehensive Problem are available in the instructor solutions manual.

End of Chapter 26 Solutions