Page 32 - CIMA MCS Workbook February 2019 - Day 1 Suggested Solutions

CIMA FEBRUARY 2019 – 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 re‐stating earlier years. Accounting errors should be adjusted retrospectively
by re‐stating earlier years.

Application to Crowncare
There is no indication of accounting errors or the need to change the basis of accounting
estimates within the case material.

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 accumulate 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.

Application to Crowncare
Crowncare holds PPE with a carrying amount of V$48.102m at 31 December 2018, which
represents 54.35% of total assets. It is expected that a considerable proportion of the PPE will
comprise premises for dental practices. 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 is likely to be
equipment for use in treating patients, along with some office equipment.

82 KAPLAN PUBLISHING