Reference no: EM132591816

Great Wholesalers is a retailer situated in South Africa. When a dreaded decease hit the country in March 2020. Great Wholesalers realised the need for increased hygiene practices to protect staff and customers. As a result Great Wholesaler entered into an agreement with Sprinkle Clean.

• Sprinkle Clean is a cleaning company that specialises in deep cleaning. On 1 April 2020 Great Wholesalers enters into a contract with Sprinkle clean to provide cleaning services for 4 months (1 April 2020 - 31 July 2020). The parties agreed to a contract price of R50 000 per month, payable in advance at the beginning of each month. Great wholesalers paid R200 000 upfront on 1 April 2020 as full settlement of the contract.

• Great Wholesalers has a very competent finance division and is able to accurately measure all costs incurred. Great Wholesalers has a 30 April year end.

Required:

Question 1: With reference to the conceptual framework of accounting, discuss how Great Wholesalers should account for the amount paid to Sprinkle Clean for the financial year ended 30 April 2020. (You are not required to discuss the credit to the bank account, your discussion should include the definitions and recognition criteria of the other relevant elements of the financial statements.)