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QUESTION TWO (30)

Exquisite Cars (Pty) Ltd is a luxury motor vehicle retailer. They engage in the sale of high end sports cars to an elite group of clients.

Due to the nature of the studio and its inventory, Exquisite Cars (Pty) Ltd has to ensure that the studio is frequently fumigated and professionally cleaned. As a result of this, Exquisite Cars (Pty) Ltd signed a contract with No Pests! (Pty) Ltd on 31 July 2022.

No Pests! (Pty) Ltd would fumigate and professionally clean the studio at a price of R160 000 on completion of the contract.

At 1 January 2023, No Pests! (Pty) Ltd completed 30% of the fumigation (based on costs incurred to date to total expected costs).

On 28 February 2023, the remaining portion of the contract was completed by No Pests! (Pty) Ltd. After inspection of the completed fumigation, No Pests! (Pty) Ltd issued a cheque on 4 March 2023 for the work completed.The fumigation expense has been recorded in the accounting records of No Pests! (Pty) Ltd according to the requirements of International Financial Reporting Standards.

Required:

With reference to the Conceptual Framework, motivate with reasons whether the fumigation of the studio should be recognised as an expense in the Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 March 2023.

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