QUESTION 4 (22 marks) IT Solutions Limited is a company that specialises in the development of accounting packages and internet/website assistance services. The company has a 31 December financial year-end. The Financial Manager requested that you assist him with the accounting of the fol- lowing two transactions: Transaction 1 IT Solutions Limited has a contract with CCBC Limited for advertising services. CCBC Limited is the local broadcaster that runs various radio stations and television broad- casts. The two parties decided that for October 2021, CCBC Limited will broadcast the IT Solutions Limited advertisements on their television channels and radio stations, as they usually do. In exchange, IT Solutions Limited will advertise CCBC Limited on their website through a "banner". The management of both entities believes that there is no need to exchange invoices since both companies are providing advertising services, and they consider the value of both advertisements to be equal. Transaction 2 IT Solutions Limited agreed to develop an accounting package for Tidee Limited. The accounting package will not be specific to Tidee Limited's business, and other compa- nies will be able to use it. The contract was concluded on 1 February 2021, and the terms of the agreement were as follow: IT Solutions' obligations Date Payment by Tidee Conclusion of contract/start of service 01/02/2021 R360 000 (30%) February 2021 Obtain an understanding of the client's business Design accounting package prototype March & April 2021 Present accounting package prototype to 01/05/2021 R300 000 (25%) May 2021 Incorporate any feedback from the client into the accounting package and finalise for client live testing Client tests live accounting package R300 000 (25%) June, July & August 2021 September 2021 Affect any changes that the client might want after the testing phase Expected completion of service 30 September 2021 R240 000 (20%) Total agreed contract price R1 200 000 The contract further stipulated that the accounting package will remain the property of IT Solutions Limited until such time that the final payment is made. REQUIRED: 4.1) Advise the Financial Manager of IT Solutions Limited whether their treatment and measurement of Transaction 1 is correct in accordance with the requirements of IFRS 15. (15 marks) 4.2) Advise the Financial Manager of IT Solutions Limited whether they should recognise the revenue for the contract with Tidee Limited, in Transaction 2, over the period of the contract or only on completion of the contract, in accordance with the requirements of IFRS 15. (7 marks) QUESTION 4 (22 marks) IT Solutions Limited is a company that specialises in the development of accounting packages and internet/website assistance services. The company has a 31 December financial year-end. The Financial Manager requested that you assist him with the accounting of the fol- lowing two transactions: Transaction 1 IT Solutions Limited has a contract with CCBC Limited for advertising services. CCBC Limited is the local broadcaster that runs various radio stations and television broad- casts. The two parties decided that for October 2021, CCBC Limited will broadcast the IT Solutions Limited advertisements on their television channels and radio stations, as they usually do. In exchange, IT Solutions Limited will advertise CCBC Limited on their website through a "banner". The management of both entities believes that there is no need to exchange invoices since both companies are providing advertising services, and they consider the value of both advertisements to be equal. Transaction 2 IT Solutions Limited agreed to develop an accounting package for Tidee Limited. The accounting package will not be specific to Tidee Limited's business, and other compa- nies will be able to use it. The contract was concluded on 1 February 2021, and the terms of the agreement were as follow: IT Solutions' obligations Date Payment by Tidee Conclusion of contract/start of service 01/02/2021 R360 000 (30%) February 2021 Obtain an understanding of the client's business Design accounting package prototype March & April 2021 Present accounting package prototype to 01/05/2021 R300 000 (25%) May 2021 Incorporate any feedback from the client into the accounting package and finalise for client live testing Client tests live accounting package R300 000 (25%) June, July & August 2021 September 2021 Affect any changes that the client might want after the testing phase Expected completion of service 30 September 2021 R240 000 (20%) Total agreed contract price R1 200 000 The contract further stipulated that the accounting package will remain the property of IT Solutions Limited until such time that the final payment is made. REQUIRED: 4.1) Advise the Financial Manager of IT Solutions Limited whether their treatment and measurement of Transaction 1 is correct in accordance with the requirements of IFRS 15. (15 marks) 4.2) Advise the Financial Manager of IT Solutions Limited whether they should recognise the revenue for the contract with Tidee Limited, in Transaction 2, over the period of the contract or only on completion of the contract, in accordance with the requirements of IFRS 15. (7 marks)