QUESTION 4
(12 marks)
JJ is the owner of a cleaning company called Squeaky Clean (Pty) Ltd. The company's
current financial year end is 31 December 2022.
JJ orders his cleaning chemicals stock from an overseas supplier.
The following information was supplied to you regarding an order of inventory from
China:
• On 1 February 2022, JJ ordered a high volume of specialised chemicals from
China.
• The chemicals cost R200 000 of which JJ had to pay a deposit of 10% to confirm
his order on that date.
• Per the agreement, the outstanding amount of R180 000 had to be settled upon
delivery.
• The chemicals were shipped from China on 1 October 2022. The ship docked at
the Durban harbour on 1 January 2023 and the chemicals were delivered to the
Squeaky Clean (Pty) Ltd premises on the same day.
• Included in the terms of the purchase agreement with the supplier was the
acknowledgment that if the ship sank on the way to South Africa, the supplier would
be responsible for replacing the chemicals and providing Squeaky Clean (Pty) Ltd
with new inventory (FOB destination point).
REQUIRED:
Discuss whether JJ may present deposit paid as an asset in their annual financial
statements for the year ended 31 December 2022.
Your answer should include the full asset definition criteria as outlined by IFRS in the
Conceptual Framework.
Use the following structure when compiling your answer:
- Definition
- Application
- Conclusion
(5 marks)
(6 marks)
(1 mark)
