NKUHLU DEPARTMENT OF ACCOUNTING

GENERAL ACCOUNTING
ACG211/211E

SUGGESTED SOLUTION
ASSESSMENT OPPORTUNITY 1
31 March 2023
Question 1

(a) There are four performance obligations in the contract

1.) Power Inverter √
2.) Convertor Kit √
3.) High temperature warning indicator √
4.) Solar Panel √

These are separate performance obligations as it has been stated that they can be sold separately
and are distinct .In terms of IFRS 15 the goods or services promised in a contract with a customer
are referred as performance obligations.√

(b) The transaction is R50 000√

The transaction price is the amount of consideration to which an entity expects to be
entitled in exchange for transferring promised goods or services to a customer, excluding
amounts collected on behalf of third parties (for example, some sales taxes) √. Bokoto pty
(Ltd ) expect to be entitled R50 000 as per the deal , hence R50 000 is the transaction price.
√
(c)

Product Stand SP Allocation

R15
Power invertor 000.00 √R13 636.36
R10
Convertor kit 000.00 √R9 090.91
High R11
temperature 000.00 √R10 000.00
R19
Solar panel 000.00 √R17 272.73
R55
Total 000.00 √R50 000.00
(d) The date on which Bokoto is 31 March 2023 . √
This is the date in which Boko satisfy performance obligation ,the company delivers the
promised goods (Power invertor ,Convertor Kit ,High temperature ,Solar Panel) to the
University√ .In terms of IFRS 15 the entity shall recognise revenue when its satisfy the
performance obligation , on 31 March 2023 has honered the promise . √

(e) 15 February 2023

Dr Bank . √ R25 000

Cr Income received in advance . √ R25 000. √

(recognition of the deposit received from the university ) . √

31 March 2023

Dr Bank . √ R25 000. √

Dr Income received in Advance . √R25 000

 Cr Revenue .√ R25 000 . √

Elimination of income received in advance . √ .recognition of revenue for the satisfying the
performance obligation .

(f) (i)15 February 2023

Dr Deposit (Asset ) (0,5)R25 000
Cr Bank (0,5) R25 000
(Recognition of deposit asset )

31 March 2023

Dr Power Inverter R13 636.36 (0,5)

Dr Convertor Kit R9 090.91 (0,5)
Dr High temperature warning indicator R10 000.00 (0,5)
Dr Solar panel R17 272.73 (0,5)
Cr Bank R25 000 (0,5)
Cr Deposit assets R25 000 (0,5)

(ii)

In terms of the conceptual framework ,a liability is defined as a present obligation to transfer an

economic resource as a result o past event .

On 15 February Bokoto has received R25 000 from the university ,on this date Bokoto has a present
obligation to payback the money to the university if it if fails to deliver the inverter system or to
deliver the system ,has no practical ability to avoid this ,in this paying back the money or delivering
of inverter system is the transfer of economic resource , the past event on 15 February 2023 when it
received the R25 000 in advance before performing the work .

The R25 000 received by Bokoto meet the definition of liability ,therefore shall not be recognised as
an income on 15 February 2023.

√ √ √ √ √
Question 2 Part A

(i) Provide definitions for the affected elements of financial statements.

Before a transaction or an event is recognised, one must first check whether the elements meet the
definitions thereof and secondly ,whether the recognition criteria is met. (1)

Definitions

A present economic resource controlled by the entity as a result of past events (1)
Asset
An economic resource is a right that has the potential to produce economic benefits (1)

Decreases in assets, or increases in liabilities, (1) that result in decreases in equity, other than
Expenses
those relating to distributions to holders of equity claims (1)

Provide your argument in support of your response in (i) above by

(ii)
applying Conceptual Framework principles to the scenario.
1) The finance manager has been instructed to make a payment, the payment is a decrease in
ADVERT assets (outflow from Gunguluza Ltd's bank account).(1)
COSTS:Expe 2) This payment, will result in decrease in Gunguluza Ltd's equity (1). This payment does not
nse represents distributions to holders of equity claims as it was paid to the supplier of services (ATD
Limited) (1)
3) The financial manager has made the payment for extra two months which fall into the 2023
ADVERT financial period.(prepaid expense) this has created an asset (1)
COSTS:Asse 4) As a result, Gunguluza has a right (present economic resourse ) to receive services for January
t and February 2023. Should ATD Limited not be able to render the service, Gunguluza will be
entitled to this money back to its bank account. (1)
5) Therefore, this right has potential to produce economic benefits (1) and the resource (prepaid
amount) is controlled by Gunguluza Ltd (1) as result of the past events being the contact with ATD
Limited (1)

(iii) Provide conclusion:Recognition criteria

Recognition is appropriate if it results in both relevant information about assets, liabilities, equity, income
and expenses and a faithful representation of those items, because the aim is to provide information that is
useful to investors, lenders and other creditors (1)

The amount of R200 000 (20 000*12-40 000) is faithful representation of the expense incurred for the 2022
financial period for adverts (1)and the R40 000 is the faithful representaion of the asset controlled by
Gunguluza Ltd. (1)
Both elements should be recognised as the information affecting these two elements is relevant (accrual
basis of accounting) (1)

Total Marks 15

Part B
Gunguluza Limited
Statement of comprehensive income for the year ended 31 December 2022
R
Sales (4 000 000+ (287500(1)*100/115) (1) 4 250 000 1)
Cost of sales (1 450 000+150 000) (1) 1 600 000 1)
Gross profit 3 750 000 1)
Other income 126 500
Interest of Fixed deposit 30 000 1)
Profit on sale of old computers 8 250 1)
Compansation received 88 250 1)
Gross operating income 3 876 500
Distribution costs W1 1 578 475 1)
Administrative expenses W1 971 308 1)
Other expenses W1 53 454 1)
Finance costs (17 454+12 470) (1) 29 924 1)
Profit before tax 1 243 339 1)
Income tax expense 43 339 1)
Profit for the year 1 200 000 1)

W1
Analysis of expenses Distribution Admistrative Other expenses
Total
Rent expense:Property 2.1 220 000.00 220 000 1)
Depreciation on Buildings 2.1 293 023.26 66 976.74 360 000 2)
Depreciation on Computers, and printing machines 2.2 27 825.00 11 925.00 39 750 2)
Salaries and wages 2.3 800 000.00 800 000.00 1 600 000 2)
Maintanance and insurance of PPE and inventory 2.3 44 000.00 44 000.00 88 000 2)
Network services subscriptions 2.4 193 626.40 48 406.60 242 033 282 372.00 3)
loss on sale of old printing machine and computers 53 454.00 53 454 1)
1578474.66 971 308.34 53 454.00 2 603 237
Presentation mark 1)

Available 32
Total marks Limited to 30