Question 2

PART A

Coastal Couriers Entity is in the business of delivering documents and packages in all regions in Namibia using its fleet of delivery vans. Coastal Couriers Entitys head office is located in Windhoek. The following is one of the transactions in the entity for the reporting period ended 31 March 2016. Ignore VAT. Reception carpet On the insistence of his wife, the owner of Coastal Couriers Entity, Mr. Amupanda, had a designer carpet installed on 19 February 2016 at the reception of the Coastal Couriers Entity head office to improve the image of the business. The carpet had an invoice price of N$15 000 which was paid for by Mr. Amupanda out of his own personal funds. As Coastal Couriers Entity did not incur any costs for the carpet, the accountant indicated that he recognized that asset and also recognized an Income in the accounting records of Coastal Couriers Entity. YOU ARE REQUIRED TO:

1. Using the definition of Income according to the Conceptual Framework, discuss the accountants treatment of the purchase of the carpet. Present your answer in columnar format as indicated below. (8)

Definition of income & Application

2. Show the effect of the purchase of the carpet on the accounting equation in the books of Coastal Couriers Entity. (2) (10 total marks)