Sipho is the owner and managing director of Sipho’s learning (Pty) Ltd (hereafter, SL). The company has a 31 December year-end. Sipho needs your help to classify a few elements in her financial statements. He provided you with the following information: Extract from the current year’s financial statements for the year ended 31 December 2022

Assets

Land R8 500 000

Buildings R6 500 000

Note 1: • The auditors of the financial statements could verify that the land was initially purchased at a cost of R5 750 000 in 2010.

• Today the land is worth R8 500 000, which was valued by independent professional valuators, Assessors (Pty) Ltd.

• The land is registered in the name of Sipho’s Grand dad, Mister F.

• Sipho has a verbal agreement with her father that he may use the land for his business.

• The auditors have a testament (legal document drawn up by professional lawyers dated back to 5 December 2010) on file, confirming that the land will be transferred to Sipho after his grandfather’s passing.

• Sipho is confident that he is allowed to present the land in his books.

Valuation: Assessors (Pty) Ltd performed the valuation on both land and buildings in November 2022. They issued a tax invoice of R25 000 to SL for the services performed. Sipho first received the valuation report and invoice on the 5th of January 2023. He did not account for this invoice in his 2022 financial statements as he feels he only received the report and the invoice in 2023.

REQUIRED:

1 With reference to the information under Note 1, discuss whether Sipho may present land as an asset in his annual financial statements for the year ended 31 December 2022. Your answer should include the full asset definition and recognition criteria as outlined by IFRS in the Conceptual Framework. Use the following structure when compiling your answer: - Definition and recognition - Application - Conclusion

2 With reference to the information under Valuation, discuss whether the invoice of R25 000 should be recorded as a liability for the current financial year ending 31 December 2022. Your answer should include the full liability definition as outlined by IFRS in the Conceptual Framework. The recognition criteria are not required.