A. Real Style Ltd, a retail store, has a policy of refunding the purchases of dissatisfied customers, even though it is under no legal obligation to do so. Its policy of refunds is generally known to its customers. According to Real Style Ltd’s refunding policy, customers may return purchased goods within three months of the date of purchase provided that they still have price tags attached.

Previous experience shows that 10% of goods sold are returned in the month following the month of sale, 5% in the second month and 2% in the third month after the sale.

Actual refunds amounted to N$34 000 during 2018 and N$30 000 during 2017. The balance on the provision for refunds account amounted to N$36 500 on 01 January 2017.

The following sales figures are available:

                          2018                     2017

                             N$                     N$__

October           120 000           110 000

November      130 000           130 000

December       150 000           140 000

Assume that the effect of discounting is immaterial

Required

1. Prepare the journal entries to account for the above information related to the provision for refunds for the year ended December 2018.

2. Prepare an extract of the statement of financial position as well as the short-term provisions note to the financial statements of Real Style Ltd for the year ended 31 December 2018 to reflect the information provided in the question. Your answer must comply with the requirements of International Financial Reporting Standards (IFRS).

B. Sea Food Limited received a letter from Total Liquidators on 15 January 2017, stating that Katima Fish Shop has been placed into liquidation owing to trading difficulties and that all creditors could expect to receive a liquidation dividend of no more than N$0.15 in N$1. Katima Fish Shop owed See Food Limited N$136,000 at 31 December 2018.

The financial statements for the year ended 31 December 2018 were approved on 15 March 2019. The income tax rate for 2018 and 2019 is 30%.

Required:

a) If the going concern assumption is no longer appropriate the entire financial statements will need revision. True or False? Explain your answer.

b) Disclose all the effects of the above information in the annual financial statements of Sea Food Limited as at 31 December 2018 in accordance with IAS 10.

Answer rating: 100% (QA)

A 1 Journal Entries 2018 October Dr Provision for Refunds 12000 Cr Sales 120000 November Dr Provisio... View the full answer