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Week+4 - FINANCIAL ACCOUNTING(ACC1006S SUGGESTED SOLUTIONS...

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FINANCIAL ACCOUNTING (ACC1006S) SUGGESTED SOLUTIONS TUTORIALS HANDED IN ON 24 AUGUST 200 9 TUTORIAL 10 (solution): TheoryA005_Aug08Q2 (a) General journal of Supreme Caterers Date Name of accounts Fol. Dr Cr 28.6.2008 Dr Inventory (A) (½) 800 000 (½) Cr Trade receivables (A) Or Deposit (asset) (1) ) 800 000 (200 x R8 000) x 50% 28.6.2008 Dr Inventory (A) (½) 800 000 (½) Cr Trade payables (L) (1) 800 000 (4 marks) (b) Do the deep fryers meet the asset definition and recognition criteria of the Accounting Framework ( ½) Definition Deep fryers are a resource controlled by the enterprise (½) On 28 June 2008 Supreme Caterers has the risks and rewards of ownership Rewards : Supreme Caterers may sell the deep fryers; Supreme Caterers will benefit if the value of the deep fryers increases whilst in transit Risks : Supreme Caterers might lose all of the deep fryers if the ship sinks /damaged (1) (½) (½) The control arose as a result of a past event (½) Transfer of the risks and rewards of ownership occurred when the manufacturer loaded the deep fryers onto the ship on 28 June 2008. (1) The deep fryers (resource) are expected to result in an inflow of future economic benefits to the business (½) The deep fryers are expected to result in an inflow of future economic benefits to the business when the business sells them. (½) Recognition criteria The cost/value of the deep fryers is reliably measurable (½) Supreme Caterers can reliably measure the cost of the deep fryers as he paid the deposit (R800 000) on 15 April 2008 and the balance of R800 000 on will be paid on 5 July 2008. Supreme Caterers would have documentary evidence by way of invoice from supplier (1) The inflow of future economic benefits is probable: (½) The future economic benefits are probable (more likely than not) as there is no indication that the deep fryers will not be sold to customers (½) Conclusion The deep fryers meet both the asset definition (½) and recognition criteria (½) of the Accounting Framework and can be recognised on the Statement of Financial Position (½) on 30 June 2008 as a current asset.
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