Page 39 - CIMA May 18 - MCS Day 1 Suggested Solution

SUGGESTED SOLUTIONS

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 Menta
Health & safety in the workplace is an important issue for Menta. There could be a risk of
workplace injury arising connected with use of machinery within garages/depots if not used and
maintained properly.

Similarly, if vehicles are not maintained property (or driven properly), there is a risk of accident,
which could result in loss or damage to vehicles (Menta’s and third party vehicles), along with
injury or death of those involved in accidents. The Centralia Daily News press article refers to an
accident involving a Menta bus.

Other possible sources of obligations, which may result in the need to recognise provisions,
include:

 Compensation or refunds due to passengers for cancellation of journeys or late arrival at

destination stops by vehicles. This may be particularly relevant for the inter‐city, longer
journeys.
 Compensation to government regulators (or repayment of financial assistance received) if
SLA include efficiency and operating targets which are not achieved.
 Breach of environmental regulations particularly if older, less efficient, vehicles are used.

There may be contingent liabilities if Menta has received grants or subsidies which are conditional
upon a specified minimum level of service, and that specified minimum is not achieved for any
reason. If it is probable that financial assistance may need to be repaid, and it can be reliably
measured, it will meet the definition of a provision and should be recognised in the financial
statements. If it is regarded as only possible, it should be disclosed in the notes to the financial
statements.

Requirements of IAS 21 re foreign currency transactions
Transactions in a foreign currency are initially translated at the spot rate in force at the date of
the transaction. When transactions are settled, such as when the supplier is paid after having
purchased goods on credit, the payment is also translated at the spot rate in force at the date of
the payment. A foreign exchange gains/loss will arise due to the movement of the exchange rate
between the transaction and the settlement date, which will be credited / charged to profits.

Any balances originating in a foreign currency that are still held at the reporting date are classified
as either monetary or non‐monetary. Monetary assets & liabilities are those that will lead to the
receipt or payment of a determinable number of currency units. Examples of monetary balances
are receivables, cash, payables and loans. Non‐monetary balances are items such as PPE,
intangible non‐current assets and inventory.

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