Realistic business scenarios. You make the judgement at each step; we give you the standard, the reasoning, and the trap to avoid.
NovaCloud signs a 24-month deal with Helio Bank for $480,000. The contract bundles: (a) a perpetual on-premise software licence, (b) 24 months of cloud hosting, and (c) implementation services that significantly customise the licence. Standalone prices: licence $250,000, hosting $180,000 ($7,500/mo), implementation $120,000.
Marlow signs a 6-year lease for a flagship store. Rent: $120,000/year, paid in arrears. Incremental borrowing rate: 6%. Marlow pays $15,000 in legal fees and receives a $20,000 fit-out incentive from the landlord. There is an option to extend for 4 more years at market rent.
At year-end Atlas holds 5,000 winter jackets at a cost of $80 each. Spring is approaching. Expected selling price has dropped to $90, but estimated selling costs (markdowns, freight to outlets) are $25/unit. Atlas's CFO argues no write-down is needed because the jackets cost less than the selling price.
Brightline has a $10m corporate loan to Orion Logistics. At origination Orion was investment grade. Six months in, Orion's revenue fell 25% after losing a key contract, its credit rating was downgraded two notches, and it is 35 days past due on a coupon. Probability of default over 12 months is now 4%; lifetime PD is 18%. Loss given default is 45%.
A factory CGU has a carrying amount of $42m (including $6m of allocated goodwill). Following a market downturn, value in use is estimated at $30m and fair value less costs of disposal at $32m. The CGU also holds a building with a separate carrying amount of $14m whose own fair value is $13m.
Vertex buys equipment for $5,000,000. Accounting depreciation: straight-line over 10 years. Tax depreciation: 40% / 30% / 20% / 10% over 4 years. Corporate tax rate is 25%. At the end of Year 1, the carrying amount is $4,500,000 and the tax base is $3,000,000.