Caring Hospitals (‘Caring’) is a private company that owns and runs a large hospital in the UK. The hospital’s balance sheet contains a very high level of property, plant, and equipment relating to the land and buildings and the state of the art hospital equipment across the wards. In addition to the fixed assets on site the hospital also has a large value of assets leased out to other hospitals in the region. Advancements in technology often lead to high value items of equipment becoming obsolete, in particular a range of MRI (Magnetic Resonance Imaging) scanners with a cost of £8m and a net book value of £6m are no longer in use due to updated equipment having since been purchased. The client’s estates team tell you that the equipment probably has a resale value of £3m. For the year end audit of Caring, a materiality level of £500k has been set. Required: a) Calculate the impact on the balance sheet and income statement if the above issue with the MRI scanner is not corrected and comment on how this might influence the users of the accounts.
Caring Hospitals (‘Caring’) is a private company that owns and runs a large hospital in the UK. The hospital’s balance sheet contains a very high level of property, plant, and equipment relating to the land and buildings and the state of the art hospital equipment across the wards. In addition to the fixed assets on site the hospital also has a large value of assets leased out to other hospitals in the region.
Advancements in technology often lead to high value items of equipment becoming obsolete, in particular a range of MRI (Magnetic Resonance Imaging) scanners with a cost of £8m and a net book value of £6m are no longer in use due to updated equipment having since been purchased. The client’s estates team tell you that the equipment probably has a resale value of £3m.
For the year end audit of Caring, a materiality level of £500k has been set.
Required:
-
a) Calculate the impact on the balance sheet and income statement if the above
issue with the MRI scanner is not corrected and comment on how this might influence the users of the accounts.
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