Page 32 - CIMA MCS Workbook November 2018 - Day 1 Suggested Solutions

CIMA NOVEMBER 2018 – MANAGEMENT CASE STUDY

EXERCISE 3 – REVISION AND APPLICATION OF IAS/IFRS

Requirements of IAS 8 Changes in accounting estimates and errors
Entities must select and disclose accounting policies which are appropriate to their circumstances,
and they should be consistently applied throughout the accounting period and from one
accounting period to the next. Accounting policies should also be reviewed to ensure that they
remain relevant to the circumstances of the business.

Changes in accounting estimates should be made prospectively, i.e. from the date of the change
of estimate, without restating earlier years. Accounting errors should be adjusted retrospectively
by re‐stating earlier years.

Application to Grapple
There is no immediate or significant issue within the pre‐seen content relating to changes in
accounting errors or estimates.

Requirements of IAS 16 Property, plant and equipment
Property, plant and equipment (PPE) is defined as being tangible assets that are held for use in
the business by an entity.

PPE should initially be recognised at cost. All costs that are incurred in bringing the item into
working condition for its intended use can be capitalised. Subsequent expenditure can be
capitalised when it results in an improvement to the economic benefits that can be generated by
the asset.

All items of PPE that have a finite life should be depreciated over their useful life, to reflect the
consumption of benefits through the use of the asset. Depreciation is typically charged on either a
straight line or a reducing balance, depending on the pattern of consumption of benefits.

PPE can be revalued to fair value. Revaluation gains should be recognised in other comprehensive
income and then accumulated within equity. If a revaluation policy is adopted then all assets
within the same class should be revalued.

On disposal, the difference between the sale proceeds and carrying value will be recognised
within profit as a gain/loss on disposal. Any surplus within equity can be transferred to retained
earnings within the SOCIE.

Application to Grapple
Grapple holds PPE with a carrying value of Z$64.6m at 30 June 2018 which represents 46.2% of
total assets. It is expected that most of the PPE will comprise plant and equipment as Grapple
operates from one set of premises acquired many years ago. There is no indication that any of the
PPE (e.g. land and buildings) has been accounted for using the valuation model In addition, there
may also be plant and equipment for repair and maintenance of other operational assets, along
with distribution vehicles and office equipment.

82 KAPLAN PUBLISHING