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CIMA AUGUST 2018 – MANAGEMENT CASE STUDY
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 SOP&L.
Application to Montel – assets held for sale
Montel may have assets that meet the definition of held for sale or a discontinued operation. If
so, Montel 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 Montel. This could be the situation if Kira
was to be acquired, but Montel did not want to retain the scientific instruments business
currently undertaken by Kira.
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:
any operating segment that accounts for 10% or more of any one of the following is a
reportable segment in its own right:
gross revenues (i.e. including internal sales and transfer revenues
total assets
total profits (if an operating segment made an operating profit)
total losses (if an operating segment made an operating loss)
ensure that the reportable segments accounts for 75% or more of net revenues (after
elimination of transfer revenues, consolidation adjustments
If there is insufficient analysis based upon application of the criteria, one or more additional
reportable segments must be identified to ensure that there is sufficient segmental reporting.
Application to Montel – operating segments
Based upon the available information, Montel is a listed entity and must comply with the
requirements of IFRS 8.
Group accounting issues ‐ IFRS 3 Business Combinations
IFRS 3 requires that if a transaction which meets the definition of a business combination takes
place, goodwill must be calculated and recognised in the consolidated financial statements.
Goodwill is then subject to an annual impairment review to ensure that it is not over‐stated.
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