A Limited has a contract to buy 3,000 phones per month for 50 per phone. Usually the company can sell each phone for 80 but in late November due to cheaper manufacturing techniques and technologies the market price falls to 48. The company is considering ceasing selling phones as it thinks that the market may not improve. If the company decides to cancel the phone purchase contract without two months' notice then it must pay a cancellation penalty of overall 50,000 for the next two months.

Required

a) Is there a present obligation at the period end 31 November 20X5?

b) What will appear in respect of the contract in the companys financial statements for the period ending 31 November 20X5?

Question 4 (marks 10) A Limited has a contract to buy 3,000 phones per month for 50 per phone. Usually the company can sell each phone for 80 but in late November due to cheaper manufacturing techniques and technologies the market price falls to 48. The company is considering ceasing selling phones as it thinks that the market may not improve. If the company decides to cancel the phone purchase contract without two months' notice then it must pay a cancellation penalty of overall 50,000 for the next two months. Required a) Is there a present obligation at the period end 31 November 20X5? b) What will appear in respect of the contract in the company's financial statements for the period ending 31 November 20X5