Electronicworld (Pty) Ltd (‘Electronic’) buys and sells television sets. During the current financial year, Electronic purchased television sets from its supplier, Gadgetwarehouse (Pty) Ltd (‘Gadget’), on 1 September 2022 and took delivery of the goods on 30 September 2022. The cash cost of the television sets was R4 000 000.
Gadget provided Electronic with deferred settlement terms of the purchase price to 28 February 2023, which is 4 months beyond normal settlement terms. Normal settlement terms are one month from the delivery date. The prevailing rate of interest on similar debt is 12% per annum. Gadget took the 12% interest rate per annum, quarterly, into consideration in determining the cost price of the television sets for Electronic. The purchase price of the television sets was settled by Electronic on 28 February 2023. Electronic has a February year-end.
REQUIRED:
1.1) Calculate the cost price of the television sets and the financing element, if any, that should be recognized in the books of Electronicworld (Pty) Ltd, in terms of IAS 2.18, deferred settlement terms.
1.2) Provide the journal entries to account for the inventory transaction in the records of Electronicworld (Pty) Ltd for the financial year ending 28 February 2023. Narrations are required.
Note:
• All amounts should be rounded to the nearest Rand. Show all calculations clearly.
• Your answer must comply with International Financial Reporting Standards (IFRS).