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1 Purple Logistics Deliver. Fast About us: Purple Logistics (Pty) Ltd (Purple), is a leading logistics companies in South Africa, providing our clients to meet

1 Purple Logistics Deliver. Fast About us: Purple Logistics (Pty) Ltd (Purple), is a leading logistics companies in South Africa, providing our clients to meet their logistics needs. Since 2010. Purple offers a comprehensive spread of products to their clients, such as refrigerating, warehousing, courier services and truck rentals. Purple understands that in today's volatile market, companies' successes are dependent on a robust supply chain that is able to provide a framework to manage their goods effectively. Our experience spans over a vast range of industries which enables us to deliver customised solutions to our customers, ensuring their competitiveness. The Purple Group (the Group') consists of a number of subsidiaries and associate companies that are strategically placed to add value to the business. The following is an illustration of the group structure of the Group: Purple Fridge (Pty) Ltd 100% Purple Logistisc (Pty) Ltd (Purple) Purple Warehousing (Pty) Ltd 45% Purple Filming (Pty) Ltd 80% Purple-Leasing (Pty) Ltd 100% EMAIL 1 To: From: Date: accountant@PURPLE.co.za kadams@PURPLE.co.za 25 October 2020 Subject: Revenue contract - Speedy Dear accountant 27 MARKS Please find below the summarised information regarding the revenue contract with Hollywood Hill Studios, an American filming company. The contract is unique since it is our first international contract. Will you please write a report on the treatment in terms of IFRS 15 Revenue from Contracts with Customers (IFRS 15')? Kind regards, Ken Purple Filming entered into a 12-month contract with Hollywood Hill Studios (the customer') on 1 December 2019 on a new unique contract that is denominated in US Dollars (USD). The contract is to assist the customer with transport and installation services for the Netflix series called "Poaching Uncovered", a series about the crisis surrounding rhino poaching. The series will be filmed in South Africa in different locations over the 12 months, which includes Cape Town, Hermanus. Knysna, Johannesburg and, very interestingly, a bush lodge in Mpumalanga. This contract is a valid contract in terms of IFRS 15. The summarised information of the promises in the contract is provided below: Promise Additional detail Stand-alone selling (Excl. VAT) price Purple Fridge (Pty) Ltd specializes in refrigerated transportation which is a vital link in the distribution of Fast Moving Consumer Goods (FMCG). Purple Warehousing provides storage services for interim transportation solutions. Purple-Leasing is a leader in truck leasing solutions for short- and long-term contracts with customers. Purple Filming provides filming production logistics for filming and production companies. You are the financial accountant of the Group and you are currently busy with the preparation of the financial reporting pack for the annual audit. The CFO, Mr Ken Adams, requested your assistance on certain financial matters that will affect the financial statements for the reporting period ended 30 September 2020. These matters are included in the mails below. Email number Email 1 Email 2 Email 3 Email 4 Email 5 Subject Revenue contract with Hollywood Hills Studios Lease agreements Lease income agreements BEE Share Schemes Financial Instruments Installation services The installation services entail for Purple Filming | R 2 000 per hour to assist with installation of filming equipment at filming locations based on the customer's specifications in the contract. The installation is usually "sold" separately to customers who do not have their own installation crews on site. Transport services The transport services entail that Purple Filming | R 95.00 per hour transport the filming equipment safely from one filming location to another. The transport services are regularly "sold" separately and does not require installation on most contracts where the customer has their own installation crew on site. Since the customer is based in the United States of America (USA) and that COVID 19 quarantine protocols will make it inefficient for the customer to bring along different installation crew members over the filming period, the installation and transport services are highly dependent on each other in the context of this contract. The payment schedule is set out in the table below based on the agreement between the two parties: Stage Upfront Stage 1 - Cape Town & Hermanus Stage 2 - Koysna, Stage 3 - Johannesburg Stage 4 - Bush Mpumalanga Total Date 1 November 2019 Amount USD50 000 USD100 000 USD50 000 31 January 2020 28 February 2020 30 June 2020 USD100 000 31 October 2020 USD300 000 USD600 000 Purple Filming has created a budget in terms of hours that is expected to be spent on the filming set over the 12-month period. The budget was approved by both parties. The details of the budget are set out below: Stage Stage 1 - Cape Town & Hermanus Stage 2 - Koys Stage 3 - Johannesburg Stage 4 - Bush Mpumalanga Total Amount of hours spent 500 120 550 780 1 950 On 30 September 2020, the actual hours spent on the series filming was 1 725. This included 90 hours lost due to COVID 19 quarantine protocols when some members of the crew were infected by COVID 19. On 30 September 2020, the new budgeted hours (2 000) were approved by both parties. During 2020, the Rand was strengthening against the USD. Purple Filming was afraid that they could lose money due to the strengthening of the Rand against the USD. Therefore. Purple Filming entered into a foreign exchange contract with a local bank for the final payment of the contract that is due on 31 October 2020. The exchange rate per the contract was determined as R15.50:$1. At year end the spot rate was R15.33:$1. We know that this should be recognised and measured in terms of IFRS 9, but not sure what the classification should be for measurement purposes. REQUIRED: Email 1 a) Discuss the recognition and measurement of the contract with Hollywood Hills (22) Studios in the accounting records of Purple Filming (Pty) Ltd in terms of IFRS 15 Revenue from Contracts with Customers (IFRS 15). As part of your discussion, please discuss any ethical considerations evident from the comments made by the CEO. You must use calculations to justify your arguments where applicable. Assume that the contract is a valid contract in terms of IFRS 15.10 Ignore any deferred tax or VAT implications. b) Discuss how the FEC contract should be measured in the accounting records of Purple Filming (Pty) Ltd for the reporting period ended 30 September 2020 in terms of IFRS 9 Financial Instruments. You are not required using the STATE, DEFINE, APPLY and CONCLUDE method in your discussion. No calculations are necessary

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