Question $2$

$($Marks: $35)$

Answer the questions below.

Q$\mathrm{.}2\mathrm{.}1$ Kermit Ltd sells machinery to a customer, Elmo Ltd on $01$ March $2024.$

$(15)$

The details of the contract are as follows:

Elmo Ltd takes delivery of the machine on $01$ March $2024.$

Kermit Ltd charges R$460000$ including VAT for the machine.

The settlement date is $31$ May $2024$ with two months being the usual settlement period allowed for credit customers.

Required:

Considering the above scenario, identify and explain the five steps which need to be followed by Kermit Ltd when recognising the revenue from the contract entered into with Elmo Ltd$.$

Q$\mathrm{.}2\mathrm{.}2$ Leather$4$Me Ltd sold a machine at a selling price of R$65000$ on $01$ July $2023.$

$(20)$

Included in the sales contracts with the customers is a $3-$year servicing agreement, commencing from the date of sale. The machine was delivered to the customer on the same day.

The usual selling price of the machine and the service agreement is R$75000$ and R$12500$ per annum.

On $01$ July $2023,$ the financial manager of Leather$4$Me Ltd recognised R$65000$ as revenue.

Required:

Using the information provided, identify and briefly explain and quantify how revenue should be recognised during the $2023$ financial year and at

$31$ December $2023.$ Comment on whether the amount recognised by the financial manager on $01$ July $2023$ is correct.