Park Hospital Limited is a private hospital group operating five hospitals in the Cape Town area. The following information relates to the year ended 31 December 20X6. The financial statements were approved for issue on 15 February 20×7. 

Medical waste: - In terms of environmental legislation Park Hospitals Limited is required to dispose of all medical waste generated by the hospitals in a socially responsible manner, within two weeks of generation, wailing which penalties may be levied. The company has the necessary permit to dispose of medical waste by incineration on the site of their hospital in Cape Town. - In terms of their permit Park Hospitals Limited is allowed to dispose of 120 tons of medical waste per annum from 1 January to 31 December. The hospitals generate an average of 10 tons of medical waste per month evenly. On 25 November 20X6 the furnace used to incinerate medical waste malfunctioned and could not be repaired. A replacement furnace was commissioned immediately but will only be completed and installed on 31 January 20×7 at a cost of C1 500000 . A deposit of C500000 was paid on 15 December 20×6. - Due to the malfunction of the furnace Park Hospitals Limited has 12 tons of un-disposed medical waste on hand at 31 December 20X6. Management has obtained a quote from Waste Incinerators to dispose of the waste on hand during the first week of January 20×7 at an estimated cost of C10 000 per ton. - On 25 January 20X7 Park Hospitals Limited received notification from the Environmental Agency that a penalty amounting to C125000 would be levied as a result of not disposing of waste within the prescribed period at 31 December 20X6. Management has decided not to raise an objection to this penalty. 

Legal claim: - On 15 October 20X6, a visitor to the clinic, Mr Downe, the Chief Executive Officer of a large company, slipped on a wet floor in the clinic foyer while on his way to visit his ill mother. As a result of his fall, he sustained multiple fractures to his left leg and right arm and was immobilised for 4 months. On 1 December 20×6 Mr Downe filed a lawsuit against the hospital for negligence, claiming damages for the injuries sustained and loss of income suffered as a result of his fall. - At 31 December 20X6 the Park Hospitals Limited attorneys have reported that it is highly probable that Mr Downe's claim will be successful against the company. However they are uncertain how much would be awarded in damages as past rulings of this nature have been inconsistent. The directors have applied their minds to the amount of damages likely to be awarded and have decided that there is not enough information at the present to make a reasonable estimate. The attorneys will gain a better understanding of the possible amount of damages after the first court proceedings to be held on 1 March 20×7. 

Required:

a) Discuss how the cost of the un-disposed medical waste on hand at 31 December 20×6 and the penalty should be recognised and measured in the financial statements of Park Hospitals Limited for the year ended 31 December 20×6 in accordance with International Financial Reporting Standards. 

b) Discuss how the legal claim should be recognised, measured and disclosed in the financial statements of Park Hospitals Limited for the year ended 31 December 20X6 in accordance with International Financial Reporting Standards.

Answer rating: 100% (QA)

a Recognition and measurement of the cost of the undisposed medical waste and penalty in the financial statements of Park Hospitals Limited The cost of the undisposed medical waste on hand at 31 Decem... View the full answer