QUESTION 1

(i) The current Conceptual Framework document defines equity as the residual interest in the assets of the enterprise after deducting all its liabilities. Identify the shortcomings in this definition. (5 marks)

(ii) Employees of a particular garment factory contracted COVID19 during the course of their employment. Few employees were seriously ill and have had severe reactions as a result. A number of these employees have decided to take the garment factory to court for failing to provide them with a safe working environment. The outcome of the lawsuit is highly uncertain. Advise the accountant if a liability exists. (5 marks)

(iii)At year-end, the executives awarded a bonus of $8 000 to their marketing manager for his outstanding performance during the year. However, due to cash constraints the bonus was not to be paid. Advise the accountant if a liability exists. (5 marks)

(iv)Trinity Medical Laboratory Ltd (TMLL) a medical research entity, has discovered a cure for a previously incurable disease. TMLL is protecting the drugs formula by keeping it secure in the company vault, rather than by patenting it. TMLL shortly plans to start discussions with vitally interested pharmaceutical companies about producing the drug for commercial sale. Being the first of its kind and, therefore, unique, TMLL has no idea as to the formulas value. Costs incurred to date in developing the formula are impossible to identify, given that the cure was discovered as a by-product of another research project. Advise the accountant if an asset exists.