Question: The management of WPB Ltd has spent the past year

The management of WPB Ltd. has spent the past year reorganizing the company’s business activities. The company is a service provider to hospitals. Originally the company operated only in Canada, where hospital care is provided at government expense through public health care systems. After demonstrating successful operations, the company subsequently was invited by several African governments to extend its expertise to providing services on that continent, particularly as a result of the intense need for external support that arose from the ongoing AIDS crisis. The African operations were supported by the various nations’ governments, with additional aid provided through the Stephan Louis Foundation. The Foundation requires WPB to provide audited financial statements each year as a condition for continuing its support.
WPB had been under pressure to decrease the cost of its services to hospitals as a result of severe budget pressure on the governments that bear the ultimate cost of hospital care. The company has consolidated some services, reduced its workforce, and sold some parts of its operations.
It now is 31 December 20X7, the end of the fiscal year. The vice president of Finance has requested your advice on the treatment of certain items in the company’s financial statements. She has provided you with a description of the items about which she is uncertain (below), and she has requested that you prepare a report in which you recommend appropriate financial statement presentation and note disclosure for each item, in accordance with international accounting standards.

Items of Concern
1. In the last quarter of the year, we struck a deal with LaidLow Corporation to take over the ambulance service division that we had acquired in 20X4 from Asper Inc. for $ 12 million. The deal will not be finalized until 15 March 20X8, dependent on the results of Laidlow’s due diligence inspection. We have operated the division as a separate unit, reporting directly to senior management. We struck the deal on 17 August 20X7. At that time, we estimated that the fair value of the division’s assets was $ 24 million, of which $ 7 million is current assets, mainly billings receivable from the hospitals and other agencies for which we provided service. We estimated that the fair value of the $ 17 million noncurrent assets was $ 14 million at the end of the third quarter, 30 September 20X7, and we wrote the noncurrent assets down to that amount. Now, at 31 December, we have good reason to believe that the noncurrent assets are worth $ 16 million.
2. We also sold off some of our laboratory facilities to HealthCom Limited. HealthCom paid the purchase price of $ 5 million in its shares. The value of the HealthCom shares at the end of 20X7 was $ 5.5 million. We do not intend to hold these shares over the long term.
3. Our facilities in the nation of Albageria were confiscated by the government after a coup, and we had to terminate our operations in that country. The facilities cost us $ 3 million to establish and were carried on our books at $ 2.7 million at the time of the confiscation. We estimated that the value of the facilities at the date of the confiscation was $ 4.3 million. We received compensation of $ 4.0 million from the Canadian federal government’s Export Development Corporation (EDC), which had provided us with “political risk” insurance.
4. We have billings receivable of US$ 13 million from African countries (not including Albageria). The billings are in U. S. dollars. We have arranged hedges for 90% of that amount. The Canadian dollar equivalent of the receivables at the time of billing was Cdn$ 14.4 million. At 31 December 20X7, the receivables were the equivalent of $ 15.3 million.
5. As the result of our restructuring activities during this past year, we estimate that we will have to make severance payments and give resettlement allowances of approximately $ 2.5 million during 20X8. The amount may vary up or down by $ 0.6 million, depending on whether our estimate of voluntary early retirements is correct.
6. We have guaranteed the operating lines of credit of several international agencies that co- operate with us in providing services abroad. The total amount of the guarantees varies, of course, because the draw on the credit lines fluctuates. At year- end 20X7, I would estimate that our total guarantees come to about $ 4.2 million. We do not expect any of these agencies to default on their credit obligations, however.

Prepare the report requested by the vice president. Be sure to consider the impacts on all of the year- end 20X7 financial statements.

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