Page 36 - CIMA MCS Workbook February 2019 - Day 1 Suggested Solutions

CIMA FEBRUARY 2019 – MANAGEMENT CASE STUDY

Application to Crowncare
Crowncare may receive subsidies or grants to support the provision of dental health care to its
patents. Crowncare should therefore ensure that financial assistance received is matched against
the service provision to which it relates. The nature and extent of financial support should also be
disclosed in the financial statements. Grants may also be received to acquire premises and/or
equipment. Capital grants would normally be accounted for as deferred income.

Contingent liabilities may exist if grants received may need to be repaid under certain
circumstances.

Requirements of IAS 37 ‐ Provisions, contingent liabilities and contingent assets
IAS 37 covers the accounting for assets and liabilities of uncertain timing or amount.

IAS 37 only allows provisions to be recognised when all of the following criteria are met:
 A present obligation exists as a result of a past event
 A probable outflow of economic benefit will be required to settle the obligation
 A reliable estimate of the amount of the obligation can be made.

Where the above criteria are not met, the situation is classed as a contingent liability. Contingent
liabilities are disclosed in the notes to the financial statements. However, if there is a remote
chance of there being an outflow of economic benefits then the situation is ignored altogether in
the financial statements.

Contingent assets are possible assets as a result of a past event. IAS 37 requires them to be
disclosed where it is probable that there will be an inflow of economic benefits. However, if it is
only possible or less likely it should be ignored.

Application to Crowncare
Health & safety in the workplace is an important issue for Crowncare. There could be a risk of a
patient or employee suffering a workplace injury arising connected with the use of dental
equipment or the administration of treatment.

Similarly, if equipment and/or premises are not maintained properly, there is a risk of accident,
which could result in injury or harm to patients and/or employees.

Other possible sources of obligations, which may result in the need to recognise provisions,
include:
 Compensation or refunds due to patients for cancellation of treatment or incomplete

treatment.
 Compensation to government regulators (or repayment of financial assistance received) if

Crowncare is found to have breached e.g. health and hygiene regulations.
 Breach of environmental regulations perhaps in relation to failure to safely dispose of the
used materials and associated matter resulting from the provision of dental treatment.

There may be contingent liabilities if Crowncare has received grants or subsidies, which are
conditional upon specified criteria, which are not subsequently complied with for any reason. If it

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