Maxmor Ltd is a television manufacturing company. At the beginning of the financial year ended 28 February 20.19, Maxmor Ltd started selling all its televisions with a refund policy. If the customer is not satisfied, the television may be returned for a full refund. Sales for the year ended 28 February 20.19 amounted to R1 500 000. At year-end on 28 February 20.19 the companys directors reliably estimated that based on the current years returns and industry patterns 5% of the television sets sold will be returned for a refund

REQUIRED:

Question 1:

Which one of the following statements are correct based on the information provided above?

1.

Maxmor Ltd has only a constructive obligation to provide customers with a refund

2.

Maxmor Ltd has only a legal obligation to provide customers with a refund.

3.

Maxmor Ltd has both a legal and constructive obligation to provide customers with a refund.

4.

Maxmor Ltd has neither a legal nor a constructive obligation to provide customers with a refund

QUESTION 2:

Maxmor Ltd will have to ..in their financial statements for the year ended 28 February 20.19.

1.

Raise a provision

2.

Disclose a note for the contingent liability

3.

Disclose a note for a contingent asset

4.

Neither raise a provision, nor disclose a note for a contingent asset nor disclose a note for a contingent liability