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Unit 1-Question Bank
Unit 1-Question Bank
Unit 1-Question Bank
ACCOUNTING 2A
UNIT 1
QUESTION BANK
QUESTION 1
AC Entity, uses the perpetual inventory system, purchased trade inventories for R226 000 on cash
The trade inventories were received on 1 March 2019
Required
Discuss using the definitions in the conceptual framework how inventory should be recognised
QUESTION 1 (
Solution:
Identify the issue: Think of the supporting journal for the transaction assist in identifying the issue
relevant to the scenario.
The credit is simple, the bank account should be credited. The issue therefore lies in the debit leg
of the journal. Two possible debits should be considered – an asset or an expense.
As the definition of an expense is a decrease in assets, the asset option would be considered first
and that an expense would be proven by disproving an asset. Every asset eventually becomes
an expense (either through impairment, depreciation, sale etc.). Remember, the definition of an
expense is effectively “… decreases in assets…” – this reinforces the approach to be followed.
An asset is a present economic resource(1) controlled by the entity as a result of past events(1). .
An economic resource is a right that has the potential to produce economic benefits(1). .
A right:
AC Entity has a present legal right of ownership
Control:
Past event:
The past events are the ordering of inventories by AC Entity and delivery by Payable L.
Scenario:
DTSV, a broadcasting company recently started a business. To be able to obtain material to broadcast
in the future, a once-off payment of R10 million cash was paid in advance, giving the broadcasting
company the right, protected by contract, to receive television program material in future to broadcast.
The right can be transferred or sold at market value. How should the amount be treated in terms of the
Conceptual Framework?
Solution:
Identify the issue: Think of the supporting journal for the transaction assist in identifying the issue
relevant to the scenario.
The credit is simple, the bank account should be credited. The issue therefore lies in the debit leg
of the journal. Two possible debits should be considered – an asset or an expense.
As the definition of an expense is a decrease in assets, the asset option would be considered first
and that an expense would be proven by disproving an asset. Every asset eventually becomes
an expense (either through impairment, depreciation, sale etc.). Remember, the definition of an
expense is effectively “… decreases in assets…” – this reinforces the approach to be followed.
An asset is a present economic resource controlled by the entity as a result of past events. An
economic resource is a right that has the potential to produce economic benefits.
A right:
DSTV has a right which is to receive future program material
Potential to produce economic benefits:
It need not be certain, or even probable, that the right will produce economic benefits. In at least
one circumstance, DSTV will receive income from the broadcasting of the future program
material.
Control:
Yes, by means of contract. The entity can choose how to use these rights and can obtain any
economic benefits that flow from them. The entity is therefore able to restrict access to these
benefits by other parties (i.e. other parties cannot get access to the same program material).
Past event:
Yes, the signing of the broadcast contract.
This amount meets the definition of an asset and qualifies to be recognised in the financial statements
Question 3
AC Entity had its delivery vehicle repaired with Payable M. The repairs were completed on 3 March 20.7
at a cost of R11 000 and it was agreed with the service provider that payment will take place within 30
days.
Required
Discuss using the definitions in the conceptual framework how the payable should be recognised
Question 3
Therefore would meet the definition of a liability interms of the new conceptual framework