Page 21 - CIMA MCS Workbook February 2019 - Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

Each claim should be considered on its individual merits and a provision made for each, as
appropriate. The provision should be the minimum unavoidable amount required to settle a claim
and should be discounted to its present value if the time value of money is a relevant factor.

If it is established that there are any uninsured losses that Crowncare is liable for, provision
should be made by Crowncare for such losses, for example legal fees incurred in providing advice
relating to the two claims.

If Crowncare makes any claims against its insurance policies to cover compensation paid to
patients, the extent of any insurance pay‐out would be regarded as a contingent asset. A
contingent asset is a possible asset that arises from a past event, and whose existence will only be
confirmed by the occurrence of one or more events outside of the control of the entity.

A contingent asset should only be recognised in the financial statements if it is virtually certain
that there will be a future inflow of economic benefits. For example, Crowncare may receive
confirmation from its insurers regarding the timing and amount(s) that it will be paid by the
insurer in settlement of either claim. This may include any payments made directly to third parties
in settlement of their claims, which would otherwise need to be settled by Crowncare.

Financial Manager

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