FAC3701
EXAM PACK
1
, GENERAL
FINANCIAL
REPORTING
2
,OCTOBER –
NOVEMBER
2017
3
, SOLUTION 1: CONCEPTUAL FRAMEWORK,
ACCOUNTING POLICIES, CHANGES IN
ACCOUNTING ESTIMATES & ERRORS, INCOME
TAXES, PROVISIONS, CONTINGENT LIABILITIES
AND CONTINGENT ASSETS & REVENUE
PART A
(a) Liability in respect of network airtime
(i) The resulting from rent received in advance will result in a performance obligation.
This performance obligation should be quantified and recognised as a liability if it fits into
the definition of a liability in terms of the Conceptual Framework (par 4.4(b)) and if it meets
the recognition criteria.
(ii) A liability is
a present obligation;
arising from past events; and
The settlement of which is expected to result in an outflow from the entity of
economic benefits.
(iii) Test whether a liability exists (application of components of definition).
There is a present obligation because of a past event. The past event is the rental that
has been received in advance. This creates a present obligation hat the entity cannot
avoid in future.
It is probable that an outflow of economic benefits will be required to settle the
obligation, as the entity has to provide to provide accommodation with respect to rental
received.
It should be possible to make a reliable estimate of the amount of the obligation, as the
rental paid is known, and it might be assumed that the tenant will make use of the
accommodation.
(iv) Conclusion
A liability exists in respect of the rental prepaid. There is, however, certainty about the the
length of the period paid for (July 2017). Therefore, the liability should be classified as a
liability.
4
EXAM PACK
1
, GENERAL
FINANCIAL
REPORTING
2
,OCTOBER –
NOVEMBER
2017
3
, SOLUTION 1: CONCEPTUAL FRAMEWORK,
ACCOUNTING POLICIES, CHANGES IN
ACCOUNTING ESTIMATES & ERRORS, INCOME
TAXES, PROVISIONS, CONTINGENT LIABILITIES
AND CONTINGENT ASSETS & REVENUE
PART A
(a) Liability in respect of network airtime
(i) The resulting from rent received in advance will result in a performance obligation.
This performance obligation should be quantified and recognised as a liability if it fits into
the definition of a liability in terms of the Conceptual Framework (par 4.4(b)) and if it meets
the recognition criteria.
(ii) A liability is
a present obligation;
arising from past events; and
The settlement of which is expected to result in an outflow from the entity of
economic benefits.
(iii) Test whether a liability exists (application of components of definition).
There is a present obligation because of a past event. The past event is the rental that
has been received in advance. This creates a present obligation hat the entity cannot
avoid in future.
It is probable that an outflow of economic benefits will be required to settle the
obligation, as the entity has to provide to provide accommodation with respect to rental
received.
It should be possible to make a reliable estimate of the amount of the obligation, as the
rental paid is known, and it might be assumed that the tenant will make use of the
accommodation.
(iv) Conclusion
A liability exists in respect of the rental prepaid. There is, however, certainty about the the
length of the period paid for (July 2017). Therefore, the liability should be classified as a
liability.
4
