QUESTION 1 (25 Marks: 45 minutes) Hold on Limited is a breakfast cereal producer and distributor company that acquired a very reputable and popular brand of cereal. Through the company\'s market researclh, the brand is expected to derive enormous value for the company now opted to not only sell the brand of cereal locally, but internationally to South Africa, Botswana and Mozambique as well. Th and logistics network to assist with the distribution of this cereal. , especially as the company has e company has a sophisticated and functional distribution As part of the production of this new brand of breakfast cereal, the company purchased a machine for NS 1 200 000 cash. The machine was delivered on the same day as the payment was made. It is expected to be used over a five year period to produce the already profitable brand of cereal. At the end of the five years, it is expected that the machine will be scrapped and thus has a zero residual value Required Discuss with reference to the Conceptual Framework, how the purchase of the machine should be recognized and measured. Your answer should include a discussion as to whether the machine should be recognized as either an asset or an expense. (15 marks) 1.2 Blits-Gids Limited delivers magazines to its clients on a monthly basis. On 30 June 2013, Viking Traders signed a one-year contact with Blits-Gids Limited to deliver magazines at their business and immediately paid N$ 9 000 for a full year\'s delivery Required The financial year end of Blits-Gids is 28 February 2014, and they consult you on how they should enter the transaction in the financial statements on 28 February 2014 Mo the basis of the conceptual framework for the preparation and tivate your answer on presentation of financial statements. (5 marks)
Q1)
The machine was purchased for the production of the new brand of breakfast cereal, so the machine should be recognized as investment in Assets. The expense should be recognized in the form of depreciation which is calculated by dividing the value of the machine by the number of assets life.
1.2)
As the financial year of Blits-Gids is ending on 28 February 2014, so from one year (12 months) the company is having delivery for 8 months (from 1 july 13 to 28 february 14) so 4 months delivery contract amount should be taken as “Pre-paid Magazine delivery”, so entry to be made on Feb 28, 2014 is:
Debit Prepaid Magazine delivery contract $3000
Credit Magazine Delivery contract expense $3000
$9000 – (9000 * 4 / 12) = $3000
1.3)
a) Indicate income realized as cash received.
b) income realized as interest is credited to the account.
c) income not realized as valued only increased.
d) income not realized as book value on increased.
e) income not realized as dividend is only declared but paid. The declaration could be reversed.
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