| University | Massey University (MU) |
| Subject | 110733 Financial Accounting and Reporting |
Financial Accounting and Reporting Assessment 1 Case study
Task 1
Metrix Limited (Metrix) is a metal fabrication company that cuts and assembles sheet metal for various uses such as automotive parts and roofing.
You are currently preparing Metrix’s financial statements for the year ended 30 June 2026. You consider the following independent transactions and events:
| Item | Details |
| 1 | On 1 July 2024, Metrix granted share options to four general managers. The share options will vest on
30 June 2027 provided that the managers remain employed at Metrix and that Metrix’s energy consumption for the 30 June 2027 financial year is at least 5% less than the energy consumption for the year ended 30 June 2024. If the energy consumption reduces between 5% and 9.99%, each general manager will receive 2,000 share options. If the energy consumption reduces between 10% and 14.99%, each general manager will receive 3,000 share options. If the energy consumption reduces by 15% or more, each general manager will receive 5,000 share options. Grant date On 1 July 2024, Metrix measures the fair value of each share option at $7. Metrix estimates that the energy consumption is likely to reduce by 6.5% over the vesting period based on management’s action plan. 30 June 2025 On 30 June 2025, Metrix estimates its energy consumption will reduce by 8% over the vesting period. Metrix estimates that all general managers will remain employed until 30 June 2027. 30 June 2026 On 30 June 2026, one general manager has left, and Metrix expects the other general managers will remain employed until 30 June 2027. Metrix now estimates that its energy consumption will reduce by 11% over the vesting period. |
| 2 | On 1 January 2026, Metrix began a six-year lease for a new head office building. On the same day, it paid its lawyers $3,000 for negotiating the lease contract.
The annual lease payments of $900,000 are payable on 31 December each year. As part of the lease arrangement, Metrix must restore the building to its original condition at the end of the lease term. It will need to dismantle and remove any office fixtures and fittings it installs. On 1 January 2026, the estimated cost of the restoration is $80,000, which will be payable on 31 December 2031. Metrix’s incremental borrowing rate is 6%. |
An extract from Metrix’s trial balance for the year ended 30 June 2026, excluding the impact of the two preceding transactions, is as follows:
Metrix Limited
| Extract from trial balance At 30 June 2026
Account name |
Debit $ | Credit $ |
| Revaluation surplus1 | 280,000 | |
| Revenue from contracts with customers | 12,000,000 | |
| Interest income | 10,000 | |
| Cost of sales | 7,500,000 | |
| Depreciation of property, plant and equipment | 400,000 | |
| Employee benefits expense | 800,000 | |
| Impairment loss expense | 60,000 | |
| Interest expense | 30,000 | |
| Administrative expenses | 200,000 | |
| Selling and marketing expenses | 120,000 | |
| Income tax expense | 700,000 |
Note
- The revaluation surplus relates to land. The land was revalued during the 30 June 2026 year by $100,000, with a $70,000 credit recognised in the revaluation surplus.
Required
| (a) For the year ended 30 June 2026, prepare the journal entry for Item 1. Show your workings.
Ignore the impact of tax. |
(3 marks) |
| (b) For the year ended 30 June 2026, prepare the journal entries for Item 2. Show your workings.
Ignore the impact of tax. |
(8 marks) |
| (c) Prepare the statement of profit or loss and other comprehensive income (SPLOCI) for the year ending 30 June 2026, after recording the journal entries arising from items 1 and 2. Prepare the SPLOCI in accordance with IFRS 18 Presentation and Disclosures in Financial Statements. Assume that the income tax expense in the trial balance extract is correct and does not require adjustment | (8 marks)
19 marks |
(19 marks)
Task 2
ClearPack Limited (ClearPack) manufactures plastic packaging for food and other retail products, supplying fast food chains, supermarkets and manufacturers.
Over the past five years, consumer preferences have shifted towards reusable or compostable packaging, and ClearPack is receiving increasing pressure from its customers to offer more sustainable alternatives. ClearPack’s sales have declined slightly over the past two years as some of its customers source packaging from more environmentally aligned suppliers.
In April 2026, the government announced it will introduce stricter regulations and penalties on single-use plastics, further intensifying the urgency for change. In response, ClearPack’s board has committed to improving its packaging options and is actively investing in research and development (R&D) to develop compostable packaging products. In August 2026, it successfully trialled compostable packaging and the R&D manager is confident that commercially viable compostable products can be ready for production by April 2027.
For the year ended 30 June 2026, ClearPack reported its first tax loss of $100,000. The tax loss can be utilised against future taxable profits indefinitely.
ClearPack has forecast the taxable income or tax loss for each of the next three financial years as follows:
| 30 June 2027 $ | 30 June 2028 $ | 30 June 2029 $ | |
| Forecast taxable income/(tax loss) | (20,000) | 400,000 | 650,000 |
The tax rate is 30%.
Required
Prepare the journal entry, if any, related to the tax loss for the year ended 30 June 2026. Provide two (2) justifications for your treatment and a specific reference to the relevant accounting standard.
(4 marks)
Task 3
Assume it is 30 June 2026. You are a Chartered Accountant currently working in a management accounting role. You have come across a job opportunity for the finance manager role in the financial accounting team at Koh Limited (Koh) and think it could be a strong next step in your career.
The role of finance manager involves oversight of accounts payable and accounts receivable teams in addition to monthly reporting obligations. Your resume, enhanced using artificial intelligence, presents your current role as more senior than it is. During your interview you speak about your team management responsibilities within your current role, despite never having had these responsibilities. You are confident that you have strong technical skills to bring to the role and believe you can meet the demands of the new position.
You are excited when you are advised you have been successful, and you start as finance manager on 1 August 2026.
At month end, you review the listing of outstanding accounts receivable balances and you notice two customers that are familiar from your previous employment. You recall that both customers were on payment plans due to cash flow problems and were placed on cash-on-delivery terms. You discuss this with the accounts receivable clerk and understand that no such measures are in place at Koh. You decide to tell your boss about their history and suggest that similar terms be arranged.
Required
Other than integrity, identify and explain the key fundamental principle of the IESBA International Code of Ethics for Professional Accountants (including International Independence Standards) at risk in each of the following:
i. Recruitment process
ii. Month-end review.
(2 marks)
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