PracticeConsultingFinancial reporting watchdog wipes £2.7m from healthcare company profit figures

Financial reporting watchdog wipes £2.7m from healthcare company profit figures

Sinclair Montrose Healthcare has seen a £840,000 profit for the 1998 financial year turn into a £1.9m loss after the Financial Reporting Review Panel objected to its treatment of product development costs.

The company had capitalised £1.8m of the costs associated with developing a new ‘brand, although FRS 10 on goodwill and intangible assets only allows it if the internally developed asset has an ascertainable market value. The new standard only came into effect nine days before Sinclair’s year end.

Unfortunately for the company, the review panel also took the view that the Medicentre development costs did not meet the ‘special circumstances’ laid down for capitalising internally developed intangible assets in SSAP 13 Accounting for Research and Development.

Aside from marketing and advertising, the panel concluded that costs incurred in establishing the Medicentre project would have related to running the business and should have been written off to the 1998 profit and loss account.

The company is reported to have decided to swallow the panel’s medicine and take the hit to the year’s profits so it could draw a line under it.

Sinclair went private through a management buyout in July 1999 so the FRRP announcement was not as damaging as it might have been had the company’s shares still been publicly listed.

www.frrp.org.uk

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