Page 32 - CIMA MCS Workbook May 2019 - Day 1 Suggested Solutions

CIMA MAY 2019 – MANAGEMENT CASE STUDY

If an entity does have discontinued operations, the results of those activities should be separately
disclosed from the ‘continuing operations’.

If an asset meets the criteria to be classified as held for sale, it is subject to an impairment review,
and then reclassified in the statement of financial position so that it is no longer included within
non‐current assets.

Application to Jord
Given that Jord is operating at full capacity and is profitable, it is unlikely that application of IFRS 5
will have any significant impact upon the financial statements of Jord.

Requirements of IAS 37 Provisions, contingent liabilities and contingent assets
IAS 37 covers the accounting for assets and liabilities of uncertain timing or amount.

IAS 37 permits recognition of provisions only when all of the following criteria are met:
 A present obligation exists as a result of a past event
 A probable outflow of economic benefit will be required to settle the obligation
 A reliable estimate of the amount of the obligation can be made.

Where the above criteria are not met, the situation is classed as a contingent liability. Contingent
liabilities are disclosed in the notes to the financial statements. However, if there is a remote
chance of there being an outflow of economic benefits then the situation is ignored altogether in
the financial statements.

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, then it should be ignored.

Application to Jord
There is reference in the case study to Jord’s health and safety practices. Given the nature of the
entity’s activities (manufacturing, installation etc.) there is a risk of an employee suffering injury
during the course of their work activities. Similarly, if there was a breach of Corvola’s health and
safety legislation, this may lead to the imposition of fines or other sanctions which may incur
additional costs, such as revision of working practices and methods.

Based upon the available information, Jord takes H&S seriously but, given the nature of its
manufacturing, construction and installation activities, the risk of accidents causing injury to
employees cannot be eliminated completely. Although there is a H&S policy, and employees are
advised that they have personal responsibility for this, Jord cannot ignore its responsibilities as an
employer.

For Corporate Social Responsibility (CSR) Jord tries to exceed the minimum environmental
requirements imposed by law. This would appear to impose a constructive obligation upon the
entity. Any constructive obligation should be accounted for in accordance with IAS 37.

82 KAPLAN PUBLISHING