Question
Lily Smith (Lily) is the financial accountant for Home Equipment Limited (HE Limited), a garden equipment manufacturer that has its head office in Wellington, New
Lily Smith (Lily) is the financial accountant for Home Equipment Limited (HE Limited), a garden equipment manufacturer that has its head office in Wellington, New Zealand, and operations in New Zealand, Australia, and Canada. HE Limiteds financial statements are prepared in accordance with New Zealand Equivalents to International Financial Reporting Standards. During the preparation of HE Limiteds financial statements for the year ended 30 June 2021, Lily considers each of the following items:
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HE Limited has 100 laptops available for use to its mobile sale consultants. These laptops require repair and maintenance each year. Lily has gathered the repair and maintenance history of these laptops over the last two years and estimated that the average repair and maintenance spend for each laptop is $150 per year. Laptops that are purchased and sold in the financial year will not incur repair and maintenance costs. Lily has estimated that 10 laptops will be purchased or sold in the year to 30 June 2021.
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HE Limited is currently being sued by one of its customers for $100,000 in damages. HE Limiteds legal team has advised that its best estimate is that there is 90% chance that HE Limited will be required to pay the full amount.
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Lily is aware that the board of HE Limited has approved a restructuring plan for its operation in Canada, which involves shutting down the plant facility for two years while major renovations are completed. The estimated costs of the plan are $25 million. However, the board has not announced the plan publicly.
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On 20 May 2021, HE Limited signed a contract with Indoor Lighting Ltd to replace all the lightings in its Wellington head office for $100,000. The work is scheduled to commence in November 2021, after the 30 June 2021 year end. The contract contains a 20% cancellation fee.
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HE Limited owns a factory in Sydney, Australia. On 15 January 2021, the bushfire completely destroyed the factory in Sydney. The factory was insured. The directors of HE Limited submitted an insurance claim on 28 February 2021. The insurance company has acknowledged receipt of the claim forms; however, due to the large number of claims in the New South Wales region, the assessor will only be able to process HEs claim after the 30 June 2021 year end.
Required:
Determine how Lily would account for each of these five items in HE Limiteds financial statements for the year ended 30 June 2021. Justify your response with specific references to NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
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