Page 22 - CIMA MCS Workbook May 2019 - Day 2 Suggested Solutions

CIMA MAY 2019 – MANAGEMENT CASE STUDY

Any payables still outstanding at the reporting date would be retranslated at the reporting date,
representing the best estimate of the C$ amount of the liability outstanding at that date. Any gain
or loss on retranslation would be included in profit or loss.

Note that for receivables and payables denominated in foreign currency at the reporting date,
even if the exchange rate at the date of subsequent settlement is known (for example, if it was
settled just after the reporting date), the receivable or payable is not adjusted to the settlement
rate. This is regarded by IAS 10 Events after the reporting period (IAS 10) as a non‐adjusting event.

Recruitment and training costs incurred in North America
Costs incurred can only be capitalised if required by a specific IFRS Standard or based upon
application of accounting principles. Costs incurred would normally be written off as an expense,
unless it can be demonstrated that they meet the definition of an asset, or a defined accounting
treatment is required by a relevant IFRS Standard.

The Conceptual framework for financial reporting (Framework) defines an asset as a resource
controlled by an entity from which future economic benefits are expected to flow to that entity.
Although it is hoped that the recruitment and training process will ultimately result in future
economic benefits being received by Jord Homes, at the time the cost is incurred, it is not
probable that such future benefits will be received.

If IFRS Standards that may be relevant are considered, it may be argued that recruitment and
training costs are development costs as defined by IAS 38 Intangible assets (IAS 38) and should
therefore be capitalised. As with the definition of an asset from the Framework, for costs to be
classified and accounted for as development costs, they must be expected to result in the future
inflow of economic benefits to Jord Homes. Therefore, it would not be appropriate to classify
recruitment and training costs as development costs in accordance with IAS 38.

Recruitment and training costs incurred therefore meet the definition of an expense from the
Framework ‘an outflow of economic benefits’ or using up of resources during an accounting
period. Therefore, recruitment and training costs should be written off as an expense to the
statement of profit or loss as they are incurred.

As with any other expenses incurred in US$, the expense an payable will be recorded at the rate
ruling at the date of the transaction, Upon subsequent settlement of the liability, ant exchange
gain or loss arising on settlement will be taken to profit or loss as an item of operating expense or
operating income

Finance Manager

106 KAPLAN PUBLISHING