Assignment $1$ AFE$3692$

Question $1$

$(15$ Marks$)$

Ocean Pro Ltd was incorporated in $2010$ with a $31$ December financial year end. The company operates in the food industry.

On the night of $01$ December $2023,$ a fire broke out on the premises. Luckily, the smoke was detected by the security officer and as a result of his quick and pro$-$active actions, the fire was contained and only affected the delivery van in the one corner of the premises. The delivery van that was damaged beyond repair, was brand new. It was bought in October $2023.$ Ocean Pro Ltd entered into an agreement with the supplier to repay the purchase price of the delivery van over a six$-$month period, commencing on $01$ November $2023.$

Ocean Pro Ltd is insured against losses as a result of fire and the insurance claim was submitted on $10$ December $2023.$ According to the insurer, payment in terms of the policy will be made by $10$ January $2024.$ The average clause in the contract will not be enforced as the value of the assets of the company was sufficiently insured. No proceeds will be earned should the asset be scrapped, because it was completely destroyed by the fire.

REQUIRED:

Explain to the financial manager of Ocean Pro Ltd$,$ in terms of the Conceptual Framework of financial reporting:

$1\mathrm{.}1.$ Whether the delivery van that was destroyed by the fire, will be recognised as an asset in the statement of financial position of Ocean Pro Ltd at $31$ December $2023($discuss the applicable recognition and de$-$recognition criteria as well$)(8$ marks$)$ and

$1\mathrm{.}2.$ Whether the outstanding loan amount in respect of the destroyed delivery van should be recognised in the statement of financial position of Ocean Pro Ltd at $31$ December $2023.(7$ marks$)$