CONCEPTUAL FRAMEWORK QUESTION 1 (28 MARKS)
Cases A to C below relate to AQ Entity, who’s current reporting date is 31 December 20.7. The
financial statements of AQ Entity will probably be approved for distribution on 20 February 20.8.
CASE A (18 MARKS)
On 17 December 20.7, AQ Entity received an order from Receivable DH, a customer with a very
good payment record over a number of years. On 27 December 20.7, the inventories were delivered
to the premises of Receivable DH, but Receivable DH’s goods received-clerk was not available to
sign for receipt of the goods. Since 8 January 20.8, Receivable DH was approached on various
occasions for a signed copy of the proof of delivery. Receivable DH indicated time and again that
neither the goods nor the proof of delivery were to be found.
On 12 January 20.8, Receivable DH provided the signed proof of delivery to AA Entity and confirmed
that the goods had indeed been delivered on 27 December 20.7. The invoice for the transaction
indicated the amount as R184 000 and is payable by Receivable DH on or before 28 January 20.8.
The cost of the goods sold is R74 000.
Required:
a) With reference to the definition and the recognition criteria of an asset, motivate whether
Receivable DH can be recognised as an asset, and if so, on what date. (11)
b) Provide the condensed definition of income. Indicate briefly when the income from a credit
sale of merchandise may be recognised. (3)
c) Recognise the transactions, by using journal entries, in the records of AQ Entity. (4)
Note: Journal narrations as well as the effect on the accounting equation are not required.
CASE B (5 MARKS)
On 1 October 20.7, AQ Entity invested an amount of R800 000 in a term deposit. The term of the
deposit expires on 30 September 20.8. The interest rate is 10% per year and the interest is added
at the end of the term of the deposit.
Required:
a) Provide the criteria of when an asset must be classified as a current asset, as contained in
IFRS for SMEs par 4.5. (4)
b) Indicate whether the term deposit must be presented as a current asset or a non-current
asset on the statement of financial position as at 31 December 20.7. (1)
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Cases A to C below relate to AQ Entity, who’s current reporting date is 31 December 20.7. The
financial statements of AQ Entity will probably be approved for distribution on 20 February 20.8.
CASE A (18 MARKS)
On 17 December 20.7, AQ Entity received an order from Receivable DH, a customer with a very
good payment record over a number of years. On 27 December 20.7, the inventories were delivered
to the premises of Receivable DH, but Receivable DH’s goods received-clerk was not available to
sign for receipt of the goods. Since 8 January 20.8, Receivable DH was approached on various
occasions for a signed copy of the proof of delivery. Receivable DH indicated time and again that
neither the goods nor the proof of delivery were to be found.
On 12 January 20.8, Receivable DH provided the signed proof of delivery to AA Entity and confirmed
that the goods had indeed been delivered on 27 December 20.7. The invoice for the transaction
indicated the amount as R184 000 and is payable by Receivable DH on or before 28 January 20.8.
The cost of the goods sold is R74 000.
Required:
a) With reference to the definition and the recognition criteria of an asset, motivate whether
Receivable DH can be recognised as an asset, and if so, on what date. (11)
b) Provide the condensed definition of income. Indicate briefly when the income from a credit
sale of merchandise may be recognised. (3)
c) Recognise the transactions, by using journal entries, in the records of AQ Entity. (4)
Note: Journal narrations as well as the effect on the accounting equation are not required.
CASE B (5 MARKS)
On 1 October 20.7, AQ Entity invested an amount of R800 000 in a term deposit. The term of the
deposit expires on 30 September 20.8. The interest rate is 10% per year and the interest is added
at the end of the term of the deposit.
Required:
a) Provide the criteria of when an asset must be classified as a current asset, as contained in
IFRS for SMEs par 4.5. (4)
b) Indicate whether the term deposit must be presented as a current asset or a non-current
asset on the statement of financial position as at 31 December 20.7. (1)
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