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QUESTION 2 IGNORE VAT. Background information Hermes Energy Solutions ( Pty ) Ltd ( Hermes ) is a leading supplier of solar power
QUESTION IGNORE VAT. Background information Hermes Energy Solutions Pty Ltd Hermes is a leading supplier of solar power products for private households and businesses in South Africa. Hermes sells solar panels and battery inverters that are distributed from the company's warehouse in Germiston, Johannesburg. Hermes also provides maintenance services on the battery inverters. You are Hermes's financial manager and the transactions relating to the financial year ended March FY below require your attention. Product promotion April "NoShedding" promotional offer The current energy crisis in South Africa has created a high demand for alternative energy solutions, to reduce the impact of loadshedding. Hermes launched a special "NoShedding" promotional offer NoShedding offer" on April to take advantage of the high demand and increase sales during April This promotion ran from to April A customer who purchases the NoShedding offer during April for a total contract price of Rincluding an administrative fee of R will receive the following: A battery inverter The battery inverter can be used to convert the energy output from solar panels or be used without solar panels to store and convert electricity provided by Eskom. A kilowatthours service plan on the battery inverter The terms of the service plan stipulate that Hermes will service the battery inverter once a specific number of kilowatthours has been converted. Included in the NoShedding offer are three services on the battery inverter, as indicated in the table below refer to section On average, customers convert electricity per year. The average is based on both solar and Eskom energy conversion. A fiveyear warranty The warranty, which covers the battery inverter, provides customers with the assurance that the battery inverter will work as intended. If the battery inverter malfunctions within the first five years from the purchase date, Hermes will repair the battery inverter free of charge. The warranty is linked to the serial number of a specific battery inverter and cannot be transferred between battery inverters. Customers cannot purchase this warranty separately from Hermes. Hermes is obliged to provide this warranty in terms of the Consumer Protection Act of South Africa. Customers can pay the total contract price in cash or on credit. The credit period provided by Hermes on the NoShedding offer is three months. The effect of the time value of money is not considered significant. Hermes's financial director suggested that the NoShedding offer consists of two separate performance obligations, namely the battery inverter and the service plan. He is however, unsure whether this is the correct conclusion. Hermes does not provide installation services, and the installation of the battery inverter is not included as part of the NoShedding offer. Hermes correctly determined that a battery inverter's standalone selling price is R and the risk and rewards of ownership transfer on purchase date to the customer. kilowatthours service plan on the battery inverter A similar service plan for the battery inverter is sold separately for R Hermes correctly estimated that the costs to be incurred to perform a service on a battery inverter would be as follows: tableService performed,tableExpected costs tobe incurredFirst service RSecond service RThird service RTotal expected costs,R The revenue on the service plan is recognised over time as the service is performed. The costs incurred as a percentage of total expected cost was correctly determined as the best method to measure progress from the sale of the service plan. Sale of a "NoShedding" promotional offer to Ms Hope On April Hermes sold one NoShedding offer to Ms Hope. She paid the full R in cash on the same date. Hermes estimated that the first service for Ms Hope's battery inverter would be in March On March Hermes performed the first kWh service on Ms Hope's battery inverter. Purchase of solar panels from Germany During January Hermes's financial director made the decision to import solar panels from Germany, for Hermes to satisfy the increasing market demand for solar products. The currency used in Germany is the Euro On January Hermes placed a bulk order for solar panels from Helios Solar Technologies Ltd HST a solar panel supplier in Germany, at an agreed total
QUESTION
IGNORE VAT.
Background information
Hermes Energy Solutions Pty Ltd Hermes is a leading supplier of solar power products for private households and businesses in South Africa. Hermes sells solar panels and battery inverters that are distributed from the company's warehouse in Germiston, Johannesburg. Hermes also provides maintenance services on the battery inverters.
You are Hermes's financial manager and the transactions relating to the financial year ended March FY below require your attention.
Product promotion
April "NoShedding" promotional offer
The current energy crisis in South Africa has created a high demand for alternative energy solutions, to reduce the impact of loadshedding. Hermes launched a special "NoShedding" promotional offer NoShedding offer" on April to take advantage of the high demand and increase sales during April This promotion ran from to April
A customer who purchases the NoShedding offer during April for a total contract price of Rincluding an administrative fee of R will receive the following:
A battery inverter
The battery inverter can be used to convert the energy output from solar panels or be used without solar panels to store and convert electricity provided by Eskom.
A kilowatthours service plan on the battery inverter
The terms of the service plan stipulate that Hermes will service the battery inverter once a specific number of kilowatthours has been converted. Included in the NoShedding offer are three services on the battery inverter, as indicated in the table below refer to section
On average, customers convert electricity per year. The average is based on both solar and Eskom energy conversion.
A fiveyear warranty
The warranty, which covers the battery inverter, provides customers with the assurance that the battery inverter will work as intended. If the battery inverter malfunctions within the first five years from the purchase date, Hermes will repair the battery inverter free of charge.
The warranty is linked to the serial number of a specific battery inverter and cannot be transferred between battery inverters.
Customers cannot purchase this warranty separately from Hermes.
Hermes is obliged to provide this warranty in terms of the Consumer Protection Act of South Africa.
Customers can pay the total contract price in cash or on credit. The credit period provided by Hermes on the NoShedding offer is three months. The effect of the time value of money is not considered significant.
Hermes's financial director suggested that the NoShedding offer consists of two separate performance obligations, namely the battery inverter and the service plan. He is however, unsure whether this is the correct conclusion.
Hermes does not provide installation services, and the installation of the battery inverter is not included as part of the NoShedding offer. Hermes correctly determined
that a battery inverter's standalone selling price is R and the risk and rewards of ownership transfer on purchase date to the customer.
kilowatthours service plan on the battery inverter
A similar service plan for the battery inverter is sold separately for R Hermes correctly estimated that the costs to be incurred to perform a service on a battery inverter would be as follows:
tableService performed,tableExpected costs tobe incurredFirst service RSecond service RThird service RTotal expected costs,R
The revenue on the service plan is recognised over time as the service is performed. The costs incurred as a percentage of total expected cost was correctly determined as the best method to measure progress from the sale of the service plan.
Sale of a "NoShedding" promotional offer to Ms Hope
On April Hermes sold one NoShedding offer to Ms Hope. She paid the full R in cash on the same date. Hermes estimated that the first service for Ms Hope's battery inverter would be in March
On March Hermes performed the first kWh service on Ms Hope's battery inverter.
Purchase of solar panels from Germany
During January Hermes's financial director made the decision to import solar panels from Germany, for Hermes to satisfy the increasing market demand for solar products. The currency used in Germany is the Euro On January Hermes placed a bulk order for solar panels from Helios Solar Technologies Ltd HST a solar panel supplier in Germany, at an agreed total
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