Question 1(a) Email to Accountant: Sale to Ms Shabalala
Subject: Guidance on Financial Statement Element for Ms Shabalala Transaction
Dear Financial Accountant,
Thank you for reaching out regarding the transaction with Ms Shabalala. Based on the details
provided and in line with the Conceptual Framework for Financial Reporting, I am happy
to offer guidance on the correct accounting treatment.
Zukofurn received full payment from Ms Shabalala on 28 December 2024, but the delivery
of the bedroom suite only occurred in January 2025. According to IFRS 15: Revenue
from Contracts with Customers, a performance obligation is satisfied when the customer
obtains control of the goods. Since delivery — and therefore the transfer of control — had
not occurred by 31 December 2024, Zukofurn had not yet fulfilled its performance
obligation at year-end.
Accordingly, although you correctly recognised the cash received by debiting the bank
account, revenue should not be recognised at this point because the performance obligation
has not been satisfied. Instead, the corresponding credit should be made to a liability,
specifically Contract Liabilities, which represents Zukofurn’s obligation to transfer goods to
the customer in the future.
In terms of the Conceptual Framework, this amount meets the definition of a liability, as it
represents a present obligation of the entity arising from a past event (receipt of cash), the
settlement of which (delivery of the suite) is expected to result in an outflow of economic
resources (inventory).
I hope this clarifies your concern. Let me know if you need further assistance.
Kind regards,
PUT YOUR NAME HERE
Question 1(b) Journal Entries: Return by Ms Naidoo
Journal Entry 1: Reverse previously recognised revenue (SFP & P/L)
Account Debit (R) Credit (R)
Revenue (P/L) 39 000
Contract Asset (SFP) (or Trade Receivable) 39 000
Narration: To reverse revenue recognised on sale of lounge suite returned by Ms Naidoo.
Journal Entry 2: Reverse cost of sales and reinstate inventory (SFP & P/L)
Account Debit (R) Credit (R)
Inventory (SFP) 28 000
, Account Debit (R) Credit (R)
Cost of Sales (P/L) 28 000
Narration: To reverse cost of sales and reinstate returned lounge suite inventory.
Journal Entry 3: Recognise handling fee income (P/L)
Account Debit (R) Credit (R)
Refund Payable (SFP) 39 000
Handling Fee Income (P/L) 3 900
Bank (SFP) (or Refund Due) 35 100
Narration: To recognise refund payable to Ms Naidoo net of 10% handling fee income.
Subject: Guidance on Financial Statement Element for Ms Shabalala Transaction
Dear Financial Accountant,
Thank you for reaching out regarding the transaction with Ms Shabalala. Based on the details
provided and in line with the Conceptual Framework for Financial Reporting, I am happy
to offer guidance on the correct accounting treatment.
Zukofurn received full payment from Ms Shabalala on 28 December 2024, but the delivery
of the bedroom suite only occurred in January 2025. According to IFRS 15: Revenue
from Contracts with Customers, a performance obligation is satisfied when the customer
obtains control of the goods. Since delivery — and therefore the transfer of control — had
not occurred by 31 December 2024, Zukofurn had not yet fulfilled its performance
obligation at year-end.
Accordingly, although you correctly recognised the cash received by debiting the bank
account, revenue should not be recognised at this point because the performance obligation
has not been satisfied. Instead, the corresponding credit should be made to a liability,
specifically Contract Liabilities, which represents Zukofurn’s obligation to transfer goods to
the customer in the future.
In terms of the Conceptual Framework, this amount meets the definition of a liability, as it
represents a present obligation of the entity arising from a past event (receipt of cash), the
settlement of which (delivery of the suite) is expected to result in an outflow of economic
resources (inventory).
I hope this clarifies your concern. Let me know if you need further assistance.
Kind regards,
PUT YOUR NAME HERE
Question 1(b) Journal Entries: Return by Ms Naidoo
Journal Entry 1: Reverse previously recognised revenue (SFP & P/L)
Account Debit (R) Credit (R)
Revenue (P/L) 39 000
Contract Asset (SFP) (or Trade Receivable) 39 000
Narration: To reverse revenue recognised on sale of lounge suite returned by Ms Naidoo.
Journal Entry 2: Reverse cost of sales and reinstate inventory (SFP & P/L)
Account Debit (R) Credit (R)
Inventory (SFP) 28 000
, Account Debit (R) Credit (R)
Cost of Sales (P/L) 28 000
Narration: To reverse cost of sales and reinstate returned lounge suite inventory.
Journal Entry 3: Recognise handling fee income (P/L)
Account Debit (R) Credit (R)
Refund Payable (SFP) 39 000
Handling Fee Income (P/L) 3 900
Bank (SFP) (or Refund Due) 35 100
Narration: To recognise refund payable to Ms Naidoo net of 10% handling fee income.
