Reference no: EM132658069
Vacational Ex
The Crusty Bakery is a small business in Umhlanga, a town in South Africa, which makes a range of breads and cakes that it sells to coffee shops in and around Umhlanga. The Business rents a building in Umhlanga Business Park from a landlord under a short- term lease at a cost of C20 000 per month.
Part of the building is sublet by The Crusty Bakery to The Coffee Cup, an artisanal coffee outlet, for C3000 per month under a short- term lease. Subletting part of the building has been successful in encouraging customer to come and buy cakes to have with their coffee.
Consider the following four unrelated scenarios relating to The Crusty Bakery rental agreements during December 20x5:
A-1 Rent of C20 000, owed to the landlord for rent of the building during December 20x5, was still payable at the end of December 20x5.
A-2 Paid cash of C60 000 at 20 December 20x5 to the landlord in respect of rent for the building for the period from 1 January 20x6 to 31 March 20x6.
B-1 Rent of C3 000, Due from the tenant (The Coffee Cup) for rent of part of the building during December 20x5, was still receivable at the end of December 20x5.
B-2 Receive cash of C9000 at the end of December 20x5 from The Coffee Cup in respect of rent for the sub-lease of part of the building from 1 January 20x6 to 31 March 20x6.
Required:
For each of the scenarios listed above, and assuming the recognition criteria are met:
Question a. Indicate the journal entry to be recorded for each transaction.
Question b. Explain, with reference to the relevant definitions in the Conceptual Framework, whether the transaction results in an asset, liability, income or expense being recognised in the financial statements of The Crusty Bakery for the year ended 31 December 20x5.
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