Page 14 - CIMA MCS Workbook August 2018 - Day 1 Tasks

CIMA NOVEMBER 2018 – OPERATIONAL CASE STUDY

Budgeting systems

GymFiT current use an incremental approach so it is likely that in one variant there will a task
asking you to discuss whether they should switch to ZBB, say for new gyms or acquisitions, so
make sure you can discuss pros, cons and suitability.

In addition, the current approach is participative where managers can set gym prices, so make
sure you can discuss whether a switch to a top down approach would be beneficial.

Decision making
As well as opening new gyms, it is likely that GymFiT will close some down. Make sure you can
discuss the decision making techniques and principles that should be applied here – e.g. looking at
relevant cash flows, looking at contribution not profit, etc
The government may also decide to support the GetupGo initiative by offering grants to gyms and
similar organisations to assist with marketing and other coats, as well as the cost of gym
equipment. Ensure that you understand which costs can be capitalised as intangible assets and
the accounting treatment for different types of grant that may be received.

F1
Working capital
There are few references within the pre-seen to the working capital cycle (F1) but ratio analysis of
the financial statements indicates some concerns relating to pressure upon working capital. In
particular, there was a significant increase in receivables from 2016 to 2017, along with an
increase in trade and other payables.
This suggests that some variants of the real exam may have tasks that look at the reasons for the
increase in both trade receivables and trade payables. Is the increase in receivables the result of
poor credit control, or part of a deliberate business strategy? Similarly, is the increase in trade
payables something agreed with suppliers, or is it an indication of difficulty in making payments
within agreed credit periods, or simply an increase in the level of business activity? In particular,
make sure you feel comfortable discussing how receivables could be reduced.

Non-current assets
The financial reporting (F1) aspects of NCAs are a common exam theme, so make sure you revise
the different angles a question could take. It is clear that the company has invested heavily in new
tangible assets for new gyms, which is a drain on cash resources. Given this, there may be a need
for additional investment with associated implications for the financial statements, which costs
can be capitalised, establishing a depreciation policy, the impact of grants and so on.
Alternatively, you could be asked to discuss aspects of accounting for intangible assets. Note that
part of the company’s strategy is to acquire other gym groups, so intangible assets are likely to
comprise goodwill on acquisition of a subsidiary.
Given that the company has continuing expansion plans, it may seek to capitalise marketing and
other costs as intangible assets. Ensure that you understand the requirements for capitalisation of
intangible assets and how they are accounted for in the financial statements.
Revenue, grants and marketing
The Celtland government has highlighted obesity and physical inactivity has a major source of
health problems. This may be an opportunity for GymFIT to launch a marketing campaign in order
to boost membership. It could, for example, offer corporate or group memberships to selected
third parties to boost membership.

10 KAPLAN PUBLISHING