Page 24 - CIMA MCS Workbook May 2019 - Day 2

Chapter 10

ADVANCED FINANCIAL REPORTING

(F2) PRACTICE TASKS

TASK 1 – BUSINESS EXPANSION PLANS

Trigger and task
You receive the following email

From: Carla Holm (Finance Director)
To: Finance Manager
Subject: Business expansion plans

I’ve just come from a directors’ board meeting during which we discussed how potential business
expansion plans could best be implemented.

Part of that discussion included the requirement for additional manufacturing and storage space.
AS I see it, there are three possibilities as follows:

1 – purchase an additional factory of at an estimated cost of C$2m

2 – build an extension to our current premises at an estimated cost of C$1m

3 – rent a warehouse for five years at an estimated annual cost of C$0.3m

I agreed to provide a briefing note at the next directors’ board meeting which summarised the
financial reporting implications of each possibility to that the issue can be considered further. The
briefing note should include information relating to which costs can be capitalised and also the
cash flow impact of each possibility.

Please provide this information to me by the end of this week.

Prepare the work that Carla has requested (Time: 45 minutes)

KAPLAN PUBLISHING 43