Page 18 - CIMA MCS Workbook February 2019 - Day 2 Suggested Solutions
P. 18
CIMA FEBRUARY 2019 – MANAGEMENT CASE STUDY
CHAPTER TEN
TASK 1 – INVESTMENT IN NEW SURGERY
From: Finance Manager
To: CEO
Date: Today
New surgery
The surgery to be disposed of will be derecognised in the financial statements at the date of
disposal, with a gain or loss on disposal included in profit or loss for the year.
As an additional issue, when the premises are vacated, it may be some time before sale and
disposal is actually agreed and completed. The premises may meet the definition of ‘held‐for‐sale’
in accordance with IFRS 5 Non‐current assets held for sale and discontinued operations (IFRS 5).
An asset is regarded as held‐for‐sale if the following criteria are complied with:
it is immediately for sale in its current condition
it is being actively marketed at a realistic price
the sale is expected to be completed within twelve months of being classified as held‐for‐
sale
the directors are committed to its sale and it is unlikely that the intention to sell will be
reversed.
If the premises do meet the criteria to be classified as held‐for‐sale, depreciation is no longer
charged, even if the asset continues to be used until it is disposed of.
In addition, the premises should be subject to an impairment review. The impairment review will
compare the current carrying amount of the premises in the financial statements with its
recoverable amount. As there is a commitment to sell the asset, recoverable amount will be
based upon fair value less costs to sell. Value in use is not relevant in this situation as value will be
recovered based upon a disposal transaction, rather than continuing to use it in the business. If
the premises are confirmed as being an impaired asset, any impairment loss is charged
immediately to profit or loss.
Finally, the premises are reclassified in the financial statements, out of property plant and
equipment and either separately classified between current and non‐current assets, or included
as a classification within current assets. The objective of this reclassification is to demonstrate
that the value of the asset will be recovered from a disposal transaction, rather than from
continued use in the business.
As a further point, it is possible that, given delays in dealing with estate agents, property
surveyors and solicitors, that it may take more than twelve months between the premises being
classified as held‐for‐sale and the disposal transaction being completed. This is acceptable, as long
as the underlying criteria for classification as held‐for‐sale continue to remain valid.
108 KAPLAN PUBLISHING
