You are a trainee accountant in the audit department of Fawlty Bean & Co, a large regional accountancy practice based in Hull, East Yorkshire. The audit Manager (who is your line manager and supervisor) is Mr B Johnson.He is due to go on two weeks' holiday tomorrow with his fianc and new baby son. In his absence he has asked you to look at some client work and prepare detailed responses ready to discuss with him on his return from vacation. He has also given you some file notes he has made on a competitor firm who are undertaking practices which he considers to be unethical and, as a trainee with up-to-date knowledge, he would like your observations. The following are summaries of the files:

File 1

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Fawlty Bean & Co. are the auditors of Iffy Ltd whose year end is 31^st December 2019.Iffy Ltd is a company engaged in research and development of bio-technology and has been the subject of many demonstrations by Human Rights groups owing to its alleged involvement with biological weapons - a claim that the company has strenuously denied.The provisional results for the year are a profit of 125M pre-tax (2018 - 100M) and also total assets of 500M (2018 - 475M)

The company has also developed many drugs which have become household names including Argaiv, a performance enhancing drug approved by the Sports Council.The development of this drug has taken many years and it is hoped that it will help towards the UK being successful in the next Olympics.

The 2019 year end audit has been completed and you have been provided with three matters which require your attention.

A government grant of 4.5M was received in January 2019 to assist in the development of a new pilot plant which would use the company's patented bio-technology.The amount of the grant has been deducted from the development costs included in Intangibles which now have a carrying value of 9M.The specialist equipment for which the grant was obtained was on order from Science Corporation, a company which had serious financial problems, and the order was cancelled.The Board are intending to abort the building of the pilot plant and concentrate on other areas of research.

One of the main research laboratories was closed two years previously and demolished.The site was cleared and the Board of Directors authorised the construction of a crche for children of the staff members to be built on the cleared area.A playground was also constructed for the children.The cost of the land and the related crche was 1.5M.The local authority has now performed a routine test of the area and found that it is contaminated with polychlorinated biphenyls.The level is equivalent to 0.001% by weight (equivalent to 10 parts per million) and current legislation only requires action when the level reaches 0.005% by weight (equivalent to 50 ppm).The company has made a provision of 1M to clean up the site.

Iffy Ltd also owns investment properties.One is a residential apartment block and the other an office block.The apartments are let on annual leases and are fully taken.The offices are on monthly leases and many of these are empty.The properties are not depreciated.Owing to the global 'credit crunch' the directors have been forced to revalue the properties at open market value at a deficit of 750,000.This has been taken to the total recognised gains and losses for the year.

Required:

Suggestions as to the matters to be considered and audit work to be performed in respect of the following areas on the Balance Sheet of Iffy Ltd:

1. Government grant
2. The crche and play area
3. Investment properties.