Question: 3. Xilo Ltd is dependent upon its software to process its purchase and sales transactions and has a year end of 31 January. On 15

3. Xilo Ltd is dependent upon its software to process its purchase and sales transactions and has a year end of 31 January.

On 15 January 20.5, Xilo Ltd approached a computer consultant to establish whether or not its software was compliant with its own new open-source operating system. On 31 January 20.5, the consultant informed Xilo Ltd that the software was not compliant and that Xilo Ltd would need to spend about R3 million to make it so.

The financial director of Xilo Ltd has decided to provide for the amount of R3 million in its accounting records for the financial year ended 31 January 20.5. Xilo Ltd has not yet appointed a contractor to do the modifications.

Required Discuss the financial director’s decision to provide for the amount of R3 million in the financial statements of Xilo Ltd for the year ended 31 January 20.5. Assume that the amount is material. Justify your answer by referring only to the requirements of the Framework.

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