Lee Burge, the finance director of Hoffman Ltd, has contacted you for some advice in the preparation of the financial statements for the year ended 31 December 2021. The firm manufactures and sells health and wellness products. Lee is unsure how to treat the following two items in the accounts: (i) On 1 November 2021 Hoffman Ltd were featured on television and in a national newspaper report which was very critical of one of their sports nutrition products, claiming that it caused severe breathing problems for individuals with certain allergies and no warnings were given in the labelling of the product. In November some of Hoffman Ltds customers affected by the product started legal action against the company, claiming total damages of 6 million. Lees legal advisors have told him that the chance of the customers being successful in their claim is about 20%. On the basis that the legal case will not come to court until next year and the chance of the company losing the case is slim, Lee does not think that that there should be any impact on the accounts this year. (ii) On 1 January 2021 Hoffman Ltd received a government grant of 600,000 towards the purchase of some new factory equipment which cost 3 million. Lee decided to capitalise the net cost of the equipment (i.e. 2.4 million) as a noncurrent asset, and he depreciated the net cost of the equipment on a straight line basis over 5 years, with an assumption of no residual value. A friend of Lees has told him that he should not have done that and should have recognised the grant as deferred credit. (iii) On 1 September 2021 Hoffman Ltd purchased a patent for 400,000 to help produce a new vegan haircare product. Lee recognised the patent in the statement of financial position as an intangible asset at cost, and at the time established a policy to write off the asset over a period of 4 years. Following the success of the vegan product and its competitive advantage, Lee believes that the patent is now worth much more than they paid for it. Lee commissioned an independent valuation firm to value the patent and the valuation firm has valued the patent on 31 December 2021 at 550,000. Lee would now like to revalue the patent to its current value.

Required: Explain, with your reasons, how the above items should have been treated in the financial statements of Hoffman Ltd and what amendments now need to be made to the statements (if any).