QUESTION 4 (30 Marks)

1. Headbook, a social media platform business, recently purchased a patent for R35 000. The patent provides the company with a unique way for the users of the social media platform to communicate with each other. Utilising this patent, the business would be saving R4 000 per annum in costs, as well as generate additional revenue of R15 000 per annum.

2. George Sorrow is a motor mechanic who recently received R35 000 from his uncle to set up a car repair business. Georges uncle operates a fleet of 10 taxis and has provided George the funds on the condition that the taxi fleet would receive priority treatment.

3. Blackstar is a business that manufactures Blu-ray players. In the event of a Bluray player breaking down after 6 months from the date of purchase by the customer, the business has offered a warranty that Blackstar would fix the Bluray players. According to records of the last few years, fixing the Blu-ray players would cost the business R1 500 per Blu-ray players. Furthermore, the records indicate that only 5% of all Blu-ray players are returned for repairs by the customer. During the 2018 financial year, Blackstar estimates that it will sell 15 000 Blu-ray players.

You are required to: In each of the situations below, discuss whether the relevant transaction would give rise to an asset or a liability. With reference to the conceptual framework and recognition criteria provide reasons for your answer