PART B

Happy Houses $($Pty$)$ Ltd $("$Happy Houses"$)$ is a construction company that contracts

with estates to build all the homes therein. Happy Houses has recently entered into a

$10-$year agreement with Balwin Properties to be their preferred building contractor for

all their estates over the next $10$ years.

The Chief Operating Officer of Happy Houses, Mr$.$ Merry, estimates that in order to

meet the demand for building houses on the Balwin Properties estates, they will need

to employ more skilled engineers and construction workers. Furthermore, Mr$.$ Merry

believes Happy Houses will need to purchase more construction equipment and obtain

office space for those administrative employees $($HR$,$ Payroll, Finance$)$ who will be

office$-$based.

On $1$ April $2024,$ Mr$.$ Merry entered into a contract with Earthmovers to purchase $15$

yellow machines for construction work at R $3,000,000$ per machine. Earthmovers do

not retain any rights over the yellow equipment, and Happy Houses can direct the use

of the yellow equipment in any way they consider appropriate without the involvement

of Earthmovers. Earthmovers is a well$-$known, reputable seller of yellow equipment.

In order to finance this purchase, Happy Houses applied for a loan of R $45,000,000$

from Invest$-$It Bank. Happy Houses was assessed by Invest$-$lt Bank and was granted

the loan with interest payable at a rate of $13\%$ per annum, repayable in $10$ years. This

is an arm's length interest rate.

On $1$ July $2024,$ Mr$.$ Merry located office space in Rosebank and applied to lease this

space from Office & Co$.$ for a five$-$year period at R $50,000$ per month. Office & Co$.$

restricts the use of the leased office space to administrative office work only. Happy

Houses cannot use the leased office space for any other activities. Office & Co$.$ also limits the number of people whom the leased office space can accommodate at any

one time to $20$ people.

Happy Houses has a financial year end of $30$ June.

REQUIRED:

$1\mathrm{.}5.$ Based on the scenario above, identify one item that meets the definition of an

asset per the Conceptual Framework in the financial statements of Happy

Houses for the year ended $30$ June $2024.$ Justify your answer by applying the

definition and recognition criteria of the Conceptual Framework to the item.

$(18$ marks$)$

$1\mathrm{.}6.$ Based on the scenario above, identify one item that meets the definition of a

liability per the Conceptual Framework in the financial statements of Happy

Houses for the year ended $30$ June $2024.$ Justify your answer by applying the

definition and recognition criteria of the Conceptual Framework to the item.