TUTORIAL 1 SOLUTION a) Recognition in the financial statements for year ended 30 June 2013 1. Charity donation The issue at hand concerns whether or not the charity pledge should be recognised as a liability at 30 June 2013. V The pledge meets the definition of a liability as follows: . There is a present obligation - Camping Supplies have a constructive obligationv, based on the announcementy they have made to the community, to contribute funds towards a new school in Caledon. Although the pledge may not be legally enforceable, by acknowledging the donation through an announcement in the local newspaper, Camping Supplies has indicated that it has accepted an obligation to honour its pledge and has created a valid expectationv on the part of the Caledon community that it will do so (i.e. its actions have given rise to a constructive obligation). . Resulting from a past event - The obligating event is the written pledgev of the charitable donation. . From which an outflow of future economic benefits is expected - there is an expectation that Camping Supplies will pay R100 000v (out flow of monies). However this liability remains one of uncertain timingv as there is no fixed date for payment as such the liability is a provision and if the following recognition criteria are met a provision can be recognised (s21.4): • There exists an obligation at reporting date (present obligation) - Yes, as noted above there is a constructive obligationv to make the charitable donation arising from the announcement made by Camping Supplies. . As result of a past event - Yes, as noted above the obligating event is the written pledgev . . Transfer of FEBs probable - There is no indication that Camping Supplies won't make this payment and as the building of the new school is to begin in August 2013 it is likely that the donation will be paid soon after the 30 June year end. . Amount estimated reliably - Yes, the amount of the donation offered is R100 000v as published in the local newspaper. In conclusion, a provisiony for R100 000v should be recognised and disclosed in the financial statements for Camping Supplies (Pty) Ltd as at 30 June 2013. 2. Patent lawsuit The second issue for discussion concerns the patent lawsuit brought against Camping Supplies. There is uncertainty around the recognition of this event as a liability in the financial statements at 30 June 2013. V The lawsuit may meet the definition of a liability if the following criteria are met: . There is a present obligation - There is a possible obligationv arising from the claim against Camping Supplies. The obligation will only be confirmed when the outcome of the court decision (a future event) is knowny and this is only expected in June 2014. As such there is no present obligation at 30 June 2013 only a 30% chancev of an obligation, per the lawyers' opinion. · Resulting from a past event - At 30