Page 24 - CIMA MCS Workbook February 2019 - Day 2 Tasks

Chapter 10

ADVANCED FINANCIAL REPORTING

(F2) PRACTICE TASKS

TASK 1 – INVESTMENT IN NEW SURGERY

Trigger and task

You receive the following email

From: Alison Lee (CEO)
To: Financial Manager
Subject: Change of premises

As part of Crowncare’s commitment to providing the best working environment possible for its
employees, and to provide patients with the best care experience, we have decided to acquire
new premises for one of our established surgeries.

The new surgery will contain state‐of‐the‐art equipment and facilities, as well as patient waiting
rooms and treatments rooms which are furnished and decorated in colours designed to make
patients feel at ease.

At the moment, I’m particularly interested in dealing with the premises as Simon Kovac (Clinical
Director) will deal with the selection and choice of new equipment. The current surgery will be
sold and the equipment probably scrapped as it is unlikely that it can be used in another surgery.
Given the location and size of the surgery that will be disposed of, it is likely that it will be sold to
a developer who will probably adapt the building and convert it into several apartments. Based
upon current expectations, the new surgery is likely to be fully up and running by 1 September
2019, and that the current surgery will be vacated fully by the same date. Could you explain how
the sale of the surgery will be dealt with in Crowncare’s financial statements?

Although the sale proceeds of the current surgery are likely to substantially meet the capital cost
of the new premises, there will be a need for some additional finance, particularly as Crowncare
will need to commit to the purchase of the new premises before the current premises have been
disposed of. If Crowncare takes out a ten‐year bank loan, repayable in monthly instalments, what
effect would this have on Crowncare’s financial statements?

Please draft some explanatory notes that explain the accounting issues associated with the
disposal of the current surgery and furniture and equipment, along with the purchase of the new
surgery with the aid of a bank loan.

Prepare a response to the CEO’s request (Time 45 minutes)

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