QUESTION 3 (20 MARKS)

Take note that the information from questions 1, 2 and 4 should not be considered for this
question.

Vehicle tracking Units

WeTrack has been providing its vehicle tracking services under 36-month contracts. WeTrack enters
into 36-month contracts with its customers after performing the necessary credit and background checks
on the customer to establish creditworthiness. WeTrack installs the vehicle tracking unit (including panic
button and anti-hijack device) into the customer’s vehicle. The tracking unit provides the platform through
which WeTrack can monitor and track vehicles through the use of its sophisticated vehicle tracking
software. The vehicle tracking unit transfers to the customer at the commencement of the contract which
can also used by the customer with other companies’ tracking services. The following contractual terms
are applicable:

• The customer pays a fee of R300 per month for this service, which is processed as an authorised
debit order directly from the customers bank account at the end of each month.
• The tracking services provided by WeTrack are:
o internet vehicle tracking, a feature whereby the customer can log onto WeTrack’s website
and track the location of his/her vehicle.
o customer support call centre, whereby customers can phone in to report stolen vehicles,
or for general queries.
o Roadside assistance – i.e. if customers experience an accident or breakdown, WeTrack
provides free roadside and towing assistance. In addition, free roadside medical response
is available for customers who are injured in an accident.

WeTrack has correctly assessed that the contract contains two performance obligations which are (i) the
supply of the tracking unit and (ii) the provision of the tracking services. WeTrack has been advertising
the sale of the tracking unit only at R6 500. WeTrack also provides tracking services only (i.e. without
the tracking unit) for R200 per month. Furthermore, WeTrack has assessed that there is no significant
financing component present in this contract.

WeTrack entered into the above contract with Mrs Noris on 1 July 2022.

Contract with Sep Kus Clothing (SKC)

During the year, WeTrack began manufacturing and selling anti-theft clothing tags to clothing retailers
(i.e., the clothing retailers are WeTrack’s customers). The tags are used by the clothing retailers on their
products to prevent theft in their stores. When a shopper pays for a clothing item, the tag is removed by
the cashier. However, if a shopper walks out of the store without paying, the tag will trigger the alarm
system in the pedestal-style antenna situated at the exit of the clothing retailers’ store. WeTrack also
sells the pedestal-style antennas.

WeTrack entered into a new contract with Sep Kus Clothing (SKC) effective 1 March 2023. WeTrack will
supply 500 tags on 1 March of each year, (commencing 1 March 2023 and for the next two years- i.e.,
1 500 tags in total). Furthermore, WeTrack will supply one pedestal-style antenna which consists of an
alarm, that SKC will use at the exit of its clothing store. This has been supplied on 1 March 2023.

Both the tags and the pedestal-style antenna are produced by WeTrack which it sells separately. The
tags will only work if SKC also purchases a pedestal-style antenna/s. Similarly, SKC will not obtain any
benefit from the pedestal-style antennas unless it also purchases tags for its clothing. SKC can use
WeTrack tags with another supplier’s pedestal-style antenna and vice versa – provided the supplier’s
products and WeTrack’s products use the same technology to be compatible with each other.
QUESTION 3 – REQUIRED Total

3.1 Prepare the journal entries that WeTrack should process for the contract with Mrs
Noris for the financial year ended 30 June 2023 in accordance with IFRS 15 Revenue
from Contracts with Customers.

Please note:
• You may aggregate the monthly journals into one journal to be processed on 30 10
June 2023.
• Show all calculations.
• You are not required to prepare any journal narrations. However, you are
required to show the statement that is impacted for each line item in your
journals.
3.2 With regards to the contract with SKC, discuss how many performance obligations 10
are present in accordance with IFRS 15 Revenue from Contracts with Customers.

Total for Question 3 20

3.1 Journals

J1 Contract Asset (SFP) 5 124✓P Commented [MZ2]: Marks for this is principal (for
1 July Revenue (P/L) 5 124✓P amount) but needs to have the correct journal names
2022 Recognition of revenue for the transfer of the tracking unit Commented [MZ1]: This revenue mark is for the
recognition of the tracking unit.
J2 Trade receivable (SFP) (R5 124/3 OR R5 124 x 12/36) 1 708✓ Commented [MZ3]: Students may mess up the dates, can
30 Contract asset (SFP) 1 708✓P be a bit lenient re the dates.
June Recognition of trade receivable for year 1 as payment Commented [MZ4]: Principal mark for crediting contract
2023 becomes receivable asset, even if debit is different.

J3 Bank (SFP) (300 x12) 3 600✓ Commented [MZ5]: Most students getting the debit 3 600
30 Trade receivable (from J2 and balancing) 1 708✓P to Bank.
Revenue (P/L) (R5 676/3 OR R5 676 x 12/36) 1 892✓P Commented [MZ6]: Principal mark for crediting trade
June Recognition of revenue for tracking services and receivable, even if debit is different or shown in 2 separate
2023 elimination of trade receivables as monthly payment is journals.
paid Commented [MZ7]: This revenue mark is for the
recognition of the tracking services.
Total consideration R300 x 36 = R10 800 ✓

Total standalone prices of 2 PO’s R6 500✓ + R200 x 36✓ = R13 700

Allocate to:
Tracking unit R10 800 x R6 500/R13 700 = R5 124 ✓C

Tracking services R10 800 x R200x36/R13 700 = R5 676 ✓C Commented [MZ8]: These marks are for the allocation
(calculation marks)

Available for 3.1 - 12 Marks

Max for 3.1 - 10 Marks
3.2 Performance obligations

A performance obligation is a promise to deliver a good or service to a customer. 

If the goods or services are distinct, the promises are separate performance

obligations and are accounted for separately
Goods or services are distinct if BOTH of the following criteria are met:
(a) The customer can benefit from the good or service either on its own or in
 Commented [MZ9]: Students may write these two criteria
conjunction with other readily available resources.
separately (i.e. write criteria a then apply then write criteria
AND b then apply) make sure you award them.
(b)The entity’s promise to transfer the good or service to the customer is 
separately identifiable from other promises in the contract. This is theory but doesn’t need to be written word for word.

(a) Benefit on its own or with other readily available resources

The tags and the pedestal style antenna are both readily available because they

are regularly sold separately by WeTrack.
The tags and the pedestal style antenna are also available from other suppliers. 
Therefore, even though SKC cannot benefit from the tags nor the pedestal style
antenna on its own, it can obtain benefits in conjunction with other resources P Commented [MZ10]: Principle mark for concluding
that are readily available to the customer. whether it meets criteria a or not. Some students write the
(b) To assess whether the promises are separately identifiable, the following points above in one sentence, so make sure you don’t miss
factors need to be assessed: these marks. Application marks does not have to be exact, as
long as the student applies appropriately,
• The entity does not provide a significant service of integration (i.e
does not bundle) of the goods or services that represents the combined
output for which the customer has contracted
 Commented [MZ11]: One mark for mentioning ALL these
• The goods or services does not significantly modify or customize
three criteria.
another good or service promised in the contract This is theory but doesn’t need to be written word for word.
• The good or service is not highly dependent or interrelated with other
The application is below which has 1 mark for each.
goods or services in the contract
Application marks does not have to be exact, as long as the
student applies appropriately.
Even though it is sold together in this contract, WeTrack is not providing a
significant integration service that transforms the tags and the pedestal style 
antenna into a combined output.
In addition, neither the tags nor the pedestal-style antenna significantly

customise or modify each other
The tags and the pedestal-style antenna are not highly interdependent or highly
interrelated because they do not significantly affect each other (because

WeTrack is able to fulfil its promise to transfer the tags separately from the
pedestal-style antenna – see point below).
Although SKC can benefit from the tags in this contract only after it has obtained
control of the pedestal-style antenna, the pedestal-style antenna and the tags do
not each significantly affect the other. This is because the entity would be able to
fulfil each of its promises in the contract independently of the other. That is, the 
entity would be able to fulfil its promise to transfer the pedestal-style antenna
even if SKC did not purchase any tags and would be able to fulfil its promise to
provide the tags, even if SKC acquired the pedestal-style antenna separately.
Based on the above, the performance obligations are separately identifiable P Commented [MZ12]: Principle mark for concluding
There are therefore two performance obligations as they are distinct: whether it meets criteria b or not. Some students write the
1. Tags P points above in one sentence, so make sure you don’t miss
these marks.
2. Pedestal-style antenna
Available for 3.2 - 14 Marks Commented [MZ13]: And lastly, a principle mark for
concluding overall on the number of PO's.
Max for 3.2 - 10 Marks