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FAC3764 Assessment 1 Question 1 (26 marks) (47 minutes) DD Armour Ltd is situated in Gauteng, South Africa, and specialises in the manufacture and sale of armoured vehicles. The armoured vehicles are sold in South Africa and internationally. The company has a financial year ending on 30 June. DD Armour Ltd offers customers the option to purchase a standard armoured vehicle or, if they prefer, the armoured vehicle can be made specific to their requirements. Custom-made armoured vehicles take 9 months to manufacture and deliver. All vehicles, whether custom-made or standard, must be serviced every 15 000km. South African customers have the option to purchase the armoured vehicles with a 120 000 km service plan. A service plan normally sells for R37 500. An armoured vehicle without the service option is sold for R970 000. The following information relates to the revenue transactions of DD Armour Ltd during the current financial year: 1.1 On 1 August 20x21 DD Armour Ltd signed a contract with S4G Ltd, a South African security company, for the purchase of 10 armoured vehicles at R985 000 per vehicle, including the 120 000km service plan option. The contract requires S4G Ltd to pay the purchase price, in cash, on the date of delivery of the vehicles. S4G Ltd took legal ownership of the 10 vehicles on 1 November 20x21, and the total purchase price was also paid on this date. All 10 vehicles underwent the 15 000 km service during the current financial year. 1.2 During the current financial year, DD Armour Ltd finalised a contract with SEAL Protection Ltd, an international private security firm, for the purchase of five custom-made armoured vehicles at a cost of R1 350 000 per vehicle. The requirements from SEAL Protection Ltd is very specific and the vehicles cannot be sold to another customer and will be delivered to SEAL Ltd all at once. If SEAL Ltd decides to cancel the contract, they will be required to pay DD Armour Ltd for the work performed until the date of contract cancellation. The contract with SEAL Protection Ltd was signed on 1 February 20x22, and DD Armour Ltd received a 50% deposit on the same date. Until 30 June 20x22, the manufacturing of the custom-made vehicles was 40% complete. 1.3 Securicor Ltd placed an order for a custom-manufactured armoured vehicle on 1 May 20x22. To secure a vehicle, Securicor Ltd paid a refundable deposit of R550 000 on 15 June 20x22. On 30 June 20x22 the contract for the manufacture of the custom vehicle has not been signed as the final design had not yet been approved. In order to boost the revenue figures for DD Armour Ltd for the current financial year, the CFO (a registered CA(SA)) has requested the accountant to recognise the deposit received as revenue from contracts with customers. Additional information: DD Armour Ltd uses straight lining to measure the progress of performance obligations satisfied over time. DD Armour Ltd performs credit and background checks on all customers to ensure creditworthiness before a contract is signed. QUESTION 1 (continued) REQUIRED Marks a) Discuss the correct recognition and measurement of transactions 1.1 and 1.2 in the accounting records of DD Armour Ltd for the period ended 30 June 20x22, in terms of IFRS 15, Contracts with customers. The discussion must be supported with calculations. b) Discuss the accounting (recognition and measurement) and ethical considerations of transaction 1.3. Please note: Your answer must comply with the requirements of International Financial Reporting Standards.

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