Ashley Geldenhuys, currently a student at UWC, had a business idea after making an appointment for her learner’s licence at one of the traffic departments. She saw a gap in the market for competitively priced photographs for licenses at various traffic departments in her province.

On her way home, she saw a run-down caravan with a for sale sign. After further enquiry and advice from her parents, she decided to purchase the caravan for R22 000. On 5 November 20x0, she transferred ownership of the caravan to her name, at the nearby traffic department. Her parents then suggested that she should approach her Uncle Colin to repair and refurbish the caravan, to fit it for her needs.

While waiting for her uncle to complete the work on the caravan, Ashley decided to do some research amongst the students in her class. She spoke to some classmates from Elsies River, who told her that the photography service at the traffic department in Halt Road was quite expensive and would be a good place to start. After receiving the caravan in good working order, Ashley decided to start her license photo business in the Elsies River area.

She purchased the necessary camera and the film required. The camera cost R8 000 and the film, R5 000.

By 28 February 20x1, she had no more inventory of the disposable film she had purchased. At the end of the first financial year (28 February 20x1), her accountant showed all the debits as expenses. An amount of R35 000 was showed as start-up expenses on the statement of profit or loss & other comprehensive income for the year ended 28 February 20x1.

Ashley is uncertain as to the correctness of this process and has approached you to find out whether the cash payments described above have been correctly recorded. No discussion is required on the film used in the current year.

You are required to:

Advise Ashley as to whether the above debits were appropriately treated using the accounting framework. If they were incorrect, please provide the correct treatment.