Question 1

SECTION B

GlobalCare is an international Non-Governmental Organization (NGO) that has historically relied entirely on donor funding. To ensure long-term sustainability, GlobalCare is transitioning part of its operations into a commercial healthcare provider.

During the year ended 31 October 20X7, the following transactions occurred:

1. Government Grant:
GlobalCare received a $10 million government grant to assist in the construction of a new commercial hospital facility. The grant stipulates that the hospital must be operated in a specific underserved region for at least 10 years. If GlobalCare ceases operations in that region before the 10 years elapse, the grant must be repaid in full. The hospital construction was completed, and operations began on 1 November 20X6. The hospital has an estimated useful life of 40 years.

2. Concessionary Loan:
To support a struggling subsidiary clinic, GlobalCare provided the subsidiary with a $5 million loan on 1 November 20X6. The loan carries an interest rate of 1% per annum, payable annually, with the principal due in 5 years. The market rate of interest for a similar loan to an entity with the subsidiary's credit risk is 8% per annum.

3. Change in Accounting Policy:
To align its financial statements with commercial healthcare peers, GlobalCare's directors have decided to voluntarily change their accounting policy for measuring property, plant, and equipment from the cost model to the revaluation model under IAS 16.

Required:

(a) Advise GlobalCare on the accounting treatment for the government grant under IAS 20 and the concessionary loan under IFRS 9 in the consolidated financial statements for the year ended 31 October 20X7. (15 marks)

(b) Explain the requirements under IAS 8 for disclosing a voluntary change in accounting policy, and discuss how GlobalCare's transition to commercial operations and the related accounting changes might be interpreted by its traditional donor base. (10 marks)

Accepted Answer

For part (a), address IAS 20 presentation options and amortization period. For IFRS 9, identify that off-market loans require fair value discounting, but note the consolidation elimination aspect. For part (b), recall the specific IAS 8 exception for adopting the revaluation model. Then, put yourself in the shoes of a charity donor: they want to see money spent on the cause, not hoarded in revalued property assets.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Students often state that the government grant should be amortized over the 10-year condition period. IAS 20 requires matching with the depreciation of the related asset (40 years). Another mistake is stating that the IAS 16 revaluation adoption must be applied retrospectively with restated comparatives.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA SBR — Strategic Business Reporting Practice Exam 3

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