Page 26 - CIMA MCS Workbook May 2019 - Day 1 Suggested Solutions

CIMA MAY 2019 – MANAGEMENT CASE STUDY

 Lease agreements. IFRS 16 Leases classifies all lease assets (with limited exceptions for
assets of small value and leases of less than twelve months) as right‐of‐use assets, with
recognition of the associated right‐of‐use liability. Such leases would introduce an element
of gearing into Jord’s financial structure. Depending upon the extent of finance required,
another possibility would be a ‘sale and leaseback’ arrangement. The specific details of the
arrangement would need to be considered in order to establish the accounting treatment.

 Grants may be available from governmental or other sources. Depending upon the nature
of any grants received, they would need to be accounted for in accordance with IAS 20 –
either a revenue‐based grant taken to SP&L (e.g. assistance with training costs) or a capital
grant which would normally be accounted for as deferred income and released to SP&L
over the estimated useful life of the non‐current assets to which it relates.

With any form of loan finance, Jord would need to ensure that it complies with any covenants
included in the agreement, such as maintaining minimum specified financial ratios e.g. to ensure
liquidity and the ability to continue to make repayments on the terms agreed.

Jord could seek a listing for a new issue of shares or bonds. This is likely to be expensive in terms
of time required, plus the associated costs of achieving compliance with applicable financial,
institutional and corporate governance requirements. There would also be the ongoing
compliance and regulatory costs of maintaining a listing and keeping institutional investors
satisfied with company financial performance and position.

From the perspective of the current family owner‐managers, if there was to be an issue of shares
on a listed exchange, this course of action would be likely to dilute their proportionate interest,
which may lead to a change in control of Jord at some future date.

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