Page 38 - CIMA MCS Workbook February 2019 - Day 1 Suggested Solutions

CIMA FEBRUARY 2019 – MANAGEMENT CASE STUDY

Application to Crowncare – foreign operations
Crowncare’s functional currency is V$. Any transactions in a different currency will therefore be
classed as foreign currency transactions. The consolidated financial statements are presented in
V$. If a subsidiary has been acquired which has a different functional currency, it will be treated as
a foreign operation.

Although Crowncare currently produces consolidated financial statements, there is no indication
that any of the subsidiaries are based outside of Varentia. If Crowncare did acquire a foreign
subsidiary, this would require recognition of retranslation gains or losses on retranslation of net
assets and goodwill in the consolidated financial statements.

IFRS 5 ‐ Assets held for sale and discontinued operations
IFRS 5 requires that an asset (or group of assets) is classified as ‘held for sale’ if it meets specified
criteria, including there is an immediate commitment to sell the asset in its current condition at a
realistic price. If an asset meets this definition, it should be reclassified as a current asset and
subject to an impairment review where recoverable amount is based upon fair value less selling
costs (value in use is not relevant as the entity has a commitment to sell the asset). From the date
of classification as held for sale, the asset will no longer be subject to depreciation and it can
continue to be used in the business until disposal.

IFRS 5 defines a discontinued operation is a component of an entity that either has been disposed
of or is classified as held for sale, and: represents either a separate major line of business or a
geographical area of operations. It should be distinguished and disclosed separately from
‘continuing operations’ in the SP&L.

Application to Crowncare – assets held for sale
Crowncare may have assets that meet the definition of held for sale or a discontinued operation.
If so, Crowncare should ensure that such assets or components of the business are correctly
classified and accounted for in the financial statements. This may arise, for example, upon
acquisition of a new subsidiary when parts of the business of that new subsidiary will be disposed
of as unwanted by Crowncare, or when it has been decided that individual assets (e.g. equipment,
premises etc.) will be disposed of.

IFRS 8 ‐ Operating segments
IFRS 8 applies to listed entities, although non‐listed entities can also choose to apply the
requirements of the reporting standard. IFRS 8 requires that the performance of an entity is
analysed and reported on based upon its operational structure. An operating segment is a
segment of the business, which has its performance reviewed by the entity’s chief decision‐maker
for purposes of decision‐making and control and also resource allocation.
An entity must summarise or aggregate its operating segments into a smaller number of
reportable segments. There is no maximum or minimum number of reportable segments,
although two criteria must be complied with to ensure that there is sufficient analysis as follows:

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