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Class Activities 1

The document outlines various group activities related to GAAP and the Conceptual Framework, focusing on the recognition of assets and liabilities. It includes discussions on the implications of rights and obligations, the recognition of customer lists as assets, and future warranty claims as liabilities. Additionally, it provides detailed requirements for preparing financial statements for Eskimo Limited in accordance with International Financial Reporting Standards.

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12 views

Class Activities 1

The document outlines various group activities related to GAAP and the Conceptual Framework, focusing on the recognition of assets and liabilities. It includes discussions on the implications of rights and obligations, the recognition of customer lists as assets, and future warranty claims as liabilities. Additionally, it provides detailed requirements for preparing financial statements for Eskimo Limited in accordance with International Financial Reporting Standards.

Uploaded by

shamielpe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Class Activities

Activity 1

Group 1 – GAAP Graded Questions, Question 2.5

The focus of the definition of an asset in the Conceptual Framework is on the existence of a right
that has the potential to produce economic benefits rather than on an expected inflow of
economic benefits.

Similarly, the focus of the definition of a liability in the Conceptual Framework is on the
existence of an obligation to require the transfer of economic benefits, rather than on an
expected outflow of economic benefits.

Required:

Discuss the implications of the existence of a right or obligation on the recognition of an asset or
liability.

Group 1 – GAAP Graded Questions, Question 2.7

Joe Seed has recently been appointed as marketing director at Granola World Limited, a large
manufacturer of breakfast foods. Joe has previously held a number of positions in the breakfast
food sector and has developed a close relationship with many valuable customers that buy
breakfast foods, such as retailers, hotel chains and cafes.

The directors of Granola World Limited believe that the list of customers has potential future
benefits and should be included as an asset on the statement of financial position.

Required:

Discuss, in terms of the Conceptual Framework, whether the list of clients can be recognised as
an asset.

Group 2 - GAAP Graded Questions, Question 2.9

Bright Lights Limited is a manufacturer and distributer of light fittings and lamps. All items are
sold with a one year warranty, where faulty items can be brought back for repair, or if irreparable,
the company will offer the option of a replacement or refund.

Past experience shows that 10% of items sold will be returned.

The directors of Bright Lights Limited want to recognise a liability on the statement of financial
position for future warranty claims.

Required:

Discuss, in terms of the Conceptual Framework, whether the future warranty claims can be
recognised as a liability.

Activity 2 – (Question 3.6 Graded Questions Gripping GAAP)


Additional information:

Share capital constitutes 120 000 ordinary shares of no par value. 20 000 shares were issued for
R40 000 on the first day of the year.

Eskimo Limited classifies expenses according to their function. Management categorise the
functions of the business into the areas of sales, administration and distribution.

Salaries of R30 000 relate to the administrative function and R20 000 to the distribution
function.

Depreciation on buildings is allocated R10 000 to the administrative function and R15 000 to the
distribution function.

The bad debts and marketing expenses relate to the administration function.

The repairs and maintenance and fuel expenses relate to the distribution function.

The company rents all of its equipment on short-term rentals; the rent expense is allocated
equally to the administration and distribution functions.

Dividends of R15 000 in respect of the year ended 31 December 20X7 were declared and paid
during January 20X8. Dividends of R20 000 in respect of the year ended 31 December 20X8 were
declared on 15 January 20X9.

There are no movements in other comprehensive income.

Required:
a) Prepare the statement of comprehensive income of Eskimo Limited for the financial year
ended 31 December 20X8 in accordance with International Financial Reporting Standards.

b) Prepare the statement of changes in equity of Eskimo Limited for the financial year ended 31
December 20X8 in accordance with International Financial Reporting Standards.

c) Prepare the statement of financial position of Eskimo Limited at 31 December 20X8 in


accordance with International Financial Reporting Standards.

d) Prepare the 'profit before tax' and 'dividends' notes to the financial statements in accordance
with International Financial Reporting Standards.

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