QUESTION $2$

Green Ways Ltd is a gardening services company that Mr$.$ Green started in $2001.$

Green Ways Ltd has a February year$-$end. Green Ways Ltd$\text{'}$s service operations

encompass a variety of activities involved in maintaining and enhancing outdoor

spaces such as gardens, lawns, landscapes, and green spaces.

On $28$ February $2023,$ Mrs$.$ Smith entered a contract with Green Ways Ltd$.$ The

contract stipulates that Green Ways Ltd will come to her house and cut her grass twice

a month for $6$ months. After $6$ months, if she wishes to continue the services, she will

need to enter a new contract. As part of the agreement, Green Ways Ltd received an

upfront payment of R$4000$ from Mrs$.$ Smith for the services to be rendered for the $6$

months. However, the services have not yet been provided by Green Ways Ltd$.$ The

first day of providing gardening services to Mrs$.$ Smith will be on $3$ March $2023.$

REQUIRED:

Discuss whether Green Ways Ltd should present the upfront payment received as

a liability in their annual financial statements for the year ended $28$ February $2023.$

Your answer should include the full definition and recognition criteria for a liability

as outlined by IFRS in their Conceptual Framework.

Use the following structure when compiling your answer:

$-$Definition and recognition

$(5$ marks$)$

$-$Application

$(6$ marks$)$

$-$Conclusion

$(1$ mark$)$ANNEXURE I: FORMATIVE ASSESSMENT $2$

SAICA Competency Framework Reference:

$\backslash$table$[[,\backslash$table$[[$B$.$ STEWARDSHIP OF CAPITALS: BUSINESS PROCESSES AND$],[$RISK MANAGEMENT$]]],[,\backslash$table$[[$B$1\mathrm{.}1$ Fundamental Reporting Concepts$],[$a$)$ Identify users' needs and develop a reporting approach by selecting$],[$suitable reporting and regulatory framework$($s$)$ which satisfies most users'$],[$needs in general purpose reporting by:$],[($i$)$ Applying the fundamental theories related to reporting,$],[($ii$)$ Applying the objective, usefulness, and limitations of the$],[$available reporting frameworks,$],[($iii$)$ Applying the objective, nature and characteristics of regulatory$],[$frameworks and requirements$],[$d$)$ Identify, define, and evaluate the different elements in reporting$],[$frameworks$]]]]$

$--$ End of Question $2---$