Page 19 - CIMA MCS Workbook August 2018 - Day 2 Tasks

FINANCIAL REPORTING AND TAXATION (F1) - PRACTICE TASKS

EXERCISE 2 (NON CURRENT ASSETS AND GOVERNMENT GRANTS)

UPDATE

GymFIT is seeking to expand the number of gyms it operates, upgrade or replace gym equipment
more frequently and increase membership numbers and retention as part of a challenging
business strategy.

TRIGGER

Today you receive the following email from Ethan Henson.

From: Ethan Henson, Operations Director.
To: Finance Officer
Subject: Investment in new gyms equipment and marketing activity.

I am putting together a proposal for presentation to the board, to support the continued
expansion of the number of gyms we operate and to replace some of the older equipment in our
established gyms. The motivation for this is the Celtland Government’s GetupGo health initiative.
We try to minimise fit-out costs by using a competitive tender approach, but I am hoping that the
nature of my proposal will put further pressure on potential suppliers to reduce their costs even
more as well as receiving GetupGo support.

A benefit of the GetupGo initiative is that we should try to use this initiative to boost recruitment
of new members. This, along with measures to replace older items of equipment in our
established gyms, will hopefully have a beneficial impact upon membership and revenue.

A further benefit is that the Celtland government has publicised the availability of grants to
support its GetupGo initiative. We should consider whether we can take advantage of these grants
to help finance our activities.

I have done some research and believe that we could be eligible to receive a government grants
from the Department of Health (DOH), the details of which are as follows:

Celtland Government Department of Health (DOH)

GetupGo initiative

As part of the drive to encourage people to adopt an active and healthy lifestyle, the DOH can
assist organisations (e.g. gyms, and sports and social clubs) with the capital cost of expanding
or upgrading their gym and exercise equipment. Grants are available of 20% of the capital
expenditure incurred up to a maximum of C$2,000,000.

Qualifying assets must have an economic life of three years or more and evidence of correct

maintenance of the assets must be provided each year where appropriate during the grant
period. Qualifying organisations must also exhibit GetupGo posters throughout their premises.
Failure to comply with the terms of the grant would result in the repayment of the total grant.

I would like to include within the proposal an explanation of why the grants are available and how
the receipt of grants would be treated in the financial statements. Unfortunately I know nothing
about the technical accounting issues related to this and Bertram Durrand suggested that you may
be able to help.

KAPLAN PUBLISHING 39