QUESTION $4$

$(12$ marks$)$

$JJ$ is the owner of a cleaning company called Squeaky Clean $($Pty$)$ Ltd$.$ The company's current financial year end is $31$ December $2022.$

$JJ$ orders his cleaning chemicals stock from an overseas supplier.

The following information was supplied to you regarding an order of inventory from China:

On $1$ February $2022,$ JJ ordered a high volume of specialised chemicals from China.

The chemicals cost R$200000$ of which JJ had to pay a deposit of $10\%$ to confirm his order on that date.

Per the agreement, the outstanding amount of R$180000$ had to be settled upon delivery.

The chemicals were shipped from China on $1$ October $2022.$ The ship docked at the Durban harbour on $1$ January $2023$ and the chemicals were delivered to the Squeaky Clean $($Pty$)$ Ltd premises on the same day.

Included in the terms of the purchase agreement with the supplier was the acknowledgment that if the ship sank on the way to South Africa, the supplier would be responsible for replacing the chemicals and providing Squeaky Clean $($Pty$)$ Ltd with new inventory $($FOB destination point$).$

REQUIRED:

Discuss whether $JJ$ may present deposit paid as an asset in their annual financial statements for the year ended $31$ December $2022.$

Your answer should include the full asset definition criteria as outlined by IFRS in the Conceptual Framework.

Use the following structure when compiling your answer:

Definition

$(5$ marks$)$

Application

$(6$ marks$)$

Conclusion

$(1$ mark$)$