Reference no: EM133554388

Assignment: Financial Reporting and Accounting

Written report and Presentation Video on Accounting Scenarios

Case Study I: Lease Contract

Synergy Strategies is a consulting company specialising in providing strategic business solutions to clients in various industries. Synergy Strategies was established in 2018, and since then, it has experienced steady growth. Synergy Strategies has recently realised that the business needs professional accounting advice to ensure that the company's financial affairs are in order.

Synergy Strategies is looking for advice that is specific to the business and tailored to the business needs. The company is looking for a trusted advisor who can help them make informed decisions and ensure that the financial statements of Synergy Strategies are accurate and compliant with the relevant International Financial Reporting Standards.

Synergy Strategies has entered into a lease agreement to use office equipment. The lease term is for 10 years, with annual lease payments of $200,000 payable at the end of each year. The present value of the lease payments discounted at the incremental borrowing rate of 10% is $1,301,000. The fair value of the leased equipment is $1,200,000. Synergy Strategies intends to exercise the purchase option at the end of the lease term for $100,000.

The asset's useful life is equal to the lease term because of the intention to take up the purchase option at the end of the lease term.

Task

Explain the initial and subsequent recognition and measurement of the lease of the office equipment in accordance with the requirements of NZ IFRS 16 to Synergy Strategies.
Show all workings.

Prepare an extract of the Statement of Profit or Loss and the Statement of Financial Position at the end of the first year of the lease arrangement.

Case Study II: Land and Office Building

Synergy Strategies acquired a piece of land for $3,000,000 on 1 January 2019. The company spent $2,000,000 to construct an office building on the land, which was completed on 31 December 2020. The building has a useful life of 40 years and a residual value of $500,000. On 31 December 2022, there was a significant decline in the market value of the building due to changes in market conditions, and it is necessary to assess the impairment of the building.

The recoverable amount of the building on 31 December 2022 is $1,000,000.

Synergy Strategies never revaluated the building since it became the owner of the building.

Task

Advise Synergy Strategies on the internal and external factors that could be an indication of possible impairment of assets in terms of NZ IAS 36. Include references to the applicable paragraphs in the accounting standard.

Calculate the impairment loss (if any) and prepare the relevant journal entries to record the impairment loss (if any) for the year ended December 2022.

Case Study III: Software Product

Synergy Strategies invested in developing a software product to complement the consulting services provided. The company incurred $2,000,000 in research and development costs to create the software, which was completed on 31 December 2020. The software has a useful life of 5 years and is expected to generate future economic benefits. On 31 December 2021, Synergy Strategies received an offer from a customer in New York to sell the software for US$3,000,000. The exchange rate on the date of the sale is NZ$1.25 for US$ 1. On 31 December 2022, the company received payment in full from the customer. The exchange rate on the payment date is NZ$1.30 for US$1.

Task

Explain the initial and subsequent recognition and measurement of the software in accordance with the requirements of NZ IAS 38 before the product was sold to the customer in New York to Synergy Strategies. Show all workings.

Calculate the foreign exchange gain or loss for the year ended 31 December 2022 in terms of the requirements of NZ IAS 21.

Case Study IV: Legal Disputes

Synergy Strategies has several ongoing legal disputes that it believes may result in significant costs. Per NZ IAS 37, the company must assess these disputes and determine whether a provision should be recognised in the financial statements.

The following is a summary of the most significant disputes:

A. A lawsuit was filed against Synergy Strategies by a former employee who alleges that she was wrongfully terminated. The employee is seeking damages of $10,000,000.

B. A dispute with a supplier. Synergy Strategies claims that the supplier breached a contract, and Synergy Strategies is seeking damages of
$5,000,000.

C. A claim by a customer who alleges that the consulting services provided by the company caused financial and reputational damage to their business. The customer is seeking damages of $3,000,000.

Synergy Strategies has consulted with its legal team and determined the following:

A. Lawsuit filed by a former employee:

According to the legal team, the best estimate of the amount that will be required to settle the dispute is $8,000,000. It is probable that Synergy Strategies will be required to pay damages.

B. Dispute with the supplier:

The outcome of this matter will only be determined in the future as the disputed clause in the contract is currently under review by the Independent Commerce Commission of New Zealand.

C. Claim by the customer:

The legal team indicated that based on legal terms, the customer will not be successful in their claim. The legal team could also not agree on an estimated amount, should the customer be successful.

Task

Explain how each legal dispute should be recognised, measured, and disclosed in the financial statements of Synergy Strategies for the year ended December 2022.