IFRS 15, IFRS 9 & IAS 7

Question 1:

Rainbow Packaging Limited (RPL) entered into a contract with Sunny Solutions Limited (SSL) on 1 July 2023 to supply packaging materials for a total of R1 000 000. SSL is required to pay a 10% deposit upfront, and the remaining balance is payable after delivery. However, SSL has a history of late payments and currently owes RPL for a previous order from June 2022.

What should Rainbow Packaging Limited consider when assessing whether the contract with Sunny Solutions Limited is valid under IFRS 15?

• Whether Rainbow Packaging Limited expects to collect the consideration for the packaging materials from SSL.

• The history of late payments means the contract is not valid under IFRS 15.

• The outstanding balance from June 2019 automatically invalidates the current contract.

• The contract is valid because the parties have signed it, regardless of payment history.

Question 2:

On 1 March 2022, GreenTech Solutions Limited (GTS) entered into a contract with WaterWise Irrigation Limited (WIL) to install an irrigation system and provide 12 months of after-sales support. The total contract value is R500 000. The installation and after-sales support are priced separately and have been correctly identified as distinct services, but the contract does not specify whether they are separate performance obligations.

Which of the following is true regarding the identification of performance obligations under IFRS 15?

• The installation and after-sales support should always be combined as a single performance obligation.

• Each distinct service, in this case installation and after-sales support, may be separate performance obligations as long as they are not highly interrelated or interdependent, they do not significantly modify each other or are integrated within one another.

• Installation is the only performance obligation in this contract.

• After-sales support should be recognised as part of the installation service.

Question 3:

In May 2019, Jet Fuel Solutions Limited (JFS) entered into a contract with FlyAir Limited to supply aviation fuel over a 3-year period. The contract stipulates a base price of R10 million but includes a volume discount. If FlyAir Limited purchases more than 500 000 litres in a year, the price will be reduced by 5%. Jet Fuel Solutions Limited estimates that FlyAir Limited will likely purchase 600 000 litres per year.

What is the most appropriate transaction price to consider under IFRS 15?

• R10 million, since the discount has not yet been earned.

• R9.5 million, based on the likely volume of fuel to be purchased.

• R10.5 million, considering potential price fluctuations in the future.

• R9 million, assuming the highest possible discount.

Question 4:

Apex Limited acquired a debt instrument on 1 January 2023 for R2 500 000. The debt instrument pays a fixed interest of 5% per annum, with principal repayment due at maturity in 5 years’ time. Apex Limited intends to hold the debt instrument to collect contractual cash flows.

How should the debt instrument be classified under IFRS 9?

• At fair value through profit or loss.

• At amortised cost.

• At fair value through other comprehensive income (OCI).

• As a financial liability.

Question 5:

Teal Limited purchased a debt instrument on 1 March 2023 for R1 800 000 which is also its fair value. The debt instrument has a 5-year term and an effective interest rate of 8% and a coupon rate of 8%. The investment in the debt instrument has been correctly classified at amortised cost in terms of IFRS 9.4.1.2. Teal Limited has a current financial year ending 31 December 2023.

What is the amount of finance income Teal Limited should recognize for the year ended 31 December 2023?

• R140 000

• R144 000

• R120 000

• R160 000

Question 6:

Is the following statement true or false?

Rainwood Investments Limited correctly classified an investment in a debt instrument at fair value through OCI in accordance with IFRS 9.4.1.2A for the year ended 31 December 2023. Rainwood Investments Limited must adjust for both finance income and fair value changes in other comprehensive income for the 2023 financial year end.

• True

• False

Question 7:

Sunshine Retail Ltd operates various retail outlets across South Africa. During the current financial year ended 31 December 2023, Sunshine Retail Ltd received R500 000 from a bank loan, repaid R200 000 on another loan from the same bank, and issued shares worth R800 000 to its current shareholders.

Which of the following represents the correct classification of these cash flows in Sunshine Retail Ltd's cash flow statement according to IAS 7?

• All the amounts will be classified as operating activities.

• The bank loan and loan repayment are financing activities, and issuing shares is an investing activity.

• The bank loan, loan repayment, and issuing shares are all financing activities.

• Issuing shares is an operating activity, while the loan repayment is a financing activity.

Question 8:

Delta Manufacturing Ltd has the following information for the financial year ended 31 December 2023:

Total operating expenses: R2 000 000, which comprises of:

-       Depreciation of R300 000

-       Impairment loss on equipment of R150 000

-       Loss on sale of machinery of R50 000

Based on the above, what is the total cash paid to suppliers and employees during the 2023 financial year?

• R1 600 000

• R1 700 000

• R1 900 000

• R1 500 000

Question 9:

Blue Ocean Fisheries Ltd had the following cash movements during the financial year ended 31 December 2023:

Purchased property, plant, and equipment (PPE) for R1 500 000, which included R200 000 for transportation and installation costs.

In terms of IAS 7, how should the purchase of PPE, including the transportation and installation costs, be classified in the statement of cash flows for the year ended 31 December 2023?

• Operating activity, since the purchase supports the company's core business.

• Financing activity, as it involves a significant cash outflow.

• Investing activity, as PPE represents a long-term investment, including transportation and installation costs.

• Operating activity, but only if the transportation and installation costs are excluded.