FIRST SEMESTER 2023
ASSESSMENT 04 (20 marks) (180 minutes)
MULTIPLE CHOICE QUESTION ASSIGNMENT
Answer the following multiple choice questions. Indicate your choice by selecting only one
option from the four options given for each question answered.
Use the following information to answer question 1 to 2:
Maxmor Ltd is a television manufacturing company. At the beginning of the financial year ended
28 February 20.19, Maxmor Ltd started selling all its televisions with a refund policy. If the
customer is not satisfied, the television may be returned for a full refund. Sales for the year
ended 28 February 20.19 amounted to R1 500 000. At year-end on 28 February 20.19 the
company’s directors reliably estimated that based on the current year’s returns and industry
patterns 5% of the television sets sold will be returned for a refund
1. Which one of the following statements are correct based on the information provided
above?
1. Maxmor Ltd has only a constructive obligation to provide customers with a refund.
2. Maxmor Ltd has only a legal obligation to provide customers with a refund.
3. Maxmor has both a legal and constructive obligation to provide customers with a
refund.
4. Maxmor has neither a legal nor a constructive obligation to provide customers with
a refund.
(2)
2. Maxmor Ltd will have to ………………………..in their financial statements for the year
ended 28 February 20.19.
1. raise a provision
2. disclose a note for the contingent liability
3. disclose a note for a contingent asset
4. neither raise a provision, nor disclose a note for a contingent asset nor disclose a
note for a contingent liability.
(2)
Use the following information to answer question 3 to 4:
Maxmor Ltd has had negative publicity due to not complying with the prices that they had
promoted on the market due to price hikes with the manufacturing parts. Due to this incident
they have estimated future operating losses of R120 000.
, FAC2601/Ass04/1/2023
ASSESSMENT 04 (First semester) (continued)
3. Which one of the following should be accounted for in the financial statements for the
year ended 28 February 20.19?
1. A provision for the future loss should be raised for R120 000.
2. Since this is a contingency, a note must be disclosed for a contingent liability.
3. The future loss does not meet the definition of a provision and thus no provision
should be made.
4. A note for a contingent asset should be disclosed in the financial statements.
(2)
4. Which one of the following statements is correct?
1. When there is a remote possibility of an outflow of resources embodying economic
benefit due to a past obligation as a result of present events no disclosure must be
made.
2. When there is a probable possibility of an inflow of resources embodying economic
benefit due to a present obligation as a result of past events a contingent liability
must be disclosed.
3. When the possibility of an outflow of resources embodying economic benefit is not
probable due to a present obligation as a result of past events a contingent liability
must be disclosed.
4. When the possibility of an outflow of resources embodying economic benefit is
highly probable due to a present obligation as a result of past events a contingent
liability must be disclosed.
(2)
Use the following information to answer questions 5 to 7:
The financial statements of Lester Ltd, a retailer of luxury cars, for the year ended
28 February 20.19 were presented to the board of directors on 30 April 20.19 to be authorised
for issue. You are the accountant of the company and the following events have taken place
after the reporting date:
Question 5
On 10 March 20.19 one of the showrooms of Lester Ltd was damaged as a result of a fire
caused by an electrical short circuit. The total damage amounted to R600 000, which included
the damage to cars in the showroom amounting to R480 000. The company’s insurance policy
does not cover this contingency and the claim was repudiated by the insurance company. A
contract was concluded with Concord Ltd on 1 April 20.19 to repair the damage to the
showroom at a cost of R120 000. This will be financed by means of surplus funds.
2
ASSESSMENT 04 (20 marks) (180 minutes)
MULTIPLE CHOICE QUESTION ASSIGNMENT
Answer the following multiple choice questions. Indicate your choice by selecting only one
option from the four options given for each question answered.
Use the following information to answer question 1 to 2:
Maxmor Ltd is a television manufacturing company. At the beginning of the financial year ended
28 February 20.19, Maxmor Ltd started selling all its televisions with a refund policy. If the
customer is not satisfied, the television may be returned for a full refund. Sales for the year
ended 28 February 20.19 amounted to R1 500 000. At year-end on 28 February 20.19 the
company’s directors reliably estimated that based on the current year’s returns and industry
patterns 5% of the television sets sold will be returned for a refund
1. Which one of the following statements are correct based on the information provided
above?
1. Maxmor Ltd has only a constructive obligation to provide customers with a refund.
2. Maxmor Ltd has only a legal obligation to provide customers with a refund.
3. Maxmor has both a legal and constructive obligation to provide customers with a
refund.
4. Maxmor has neither a legal nor a constructive obligation to provide customers with
a refund.
(2)
2. Maxmor Ltd will have to ………………………..in their financial statements for the year
ended 28 February 20.19.
1. raise a provision
2. disclose a note for the contingent liability
3. disclose a note for a contingent asset
4. neither raise a provision, nor disclose a note for a contingent asset nor disclose a
note for a contingent liability.
(2)
Use the following information to answer question 3 to 4:
Maxmor Ltd has had negative publicity due to not complying with the prices that they had
promoted on the market due to price hikes with the manufacturing parts. Due to this incident
they have estimated future operating losses of R120 000.
, FAC2601/Ass04/1/2023
ASSESSMENT 04 (First semester) (continued)
3. Which one of the following should be accounted for in the financial statements for the
year ended 28 February 20.19?
1. A provision for the future loss should be raised for R120 000.
2. Since this is a contingency, a note must be disclosed for a contingent liability.
3. The future loss does not meet the definition of a provision and thus no provision
should be made.
4. A note for a contingent asset should be disclosed in the financial statements.
(2)
4. Which one of the following statements is correct?
1. When there is a remote possibility of an outflow of resources embodying economic
benefit due to a past obligation as a result of present events no disclosure must be
made.
2. When there is a probable possibility of an inflow of resources embodying economic
benefit due to a present obligation as a result of past events a contingent liability
must be disclosed.
3. When the possibility of an outflow of resources embodying economic benefit is not
probable due to a present obligation as a result of past events a contingent liability
must be disclosed.
4. When the possibility of an outflow of resources embodying economic benefit is
highly probable due to a present obligation as a result of past events a contingent
liability must be disclosed.
(2)
Use the following information to answer questions 5 to 7:
The financial statements of Lester Ltd, a retailer of luxury cars, for the year ended
28 February 20.19 were presented to the board of directors on 30 April 20.19 to be authorised
for issue. You are the accountant of the company and the following events have taken place
after the reporting date:
Question 5
On 10 March 20.19 one of the showrooms of Lester Ltd was damaged as a result of a fire
caused by an electrical short circuit. The total damage amounted to R600 000, which included
the damage to cars in the showroom amounting to R480 000. The company’s insurance policy
does not cover this contingency and the claim was repudiated by the insurance company. A
contract was concluded with Concord Ltd on 1 April 20.19 to repair the damage to the
showroom at a cost of R120 000. This will be financed by means of surplus funds.
2
