Reference no: EM132983777

Study the scenario and complete the question(s) that follow(s):

James Limited successfully tendered for a contract from Chaka Limited to supply, fit and maintain electricity supply units for all Chaka Limited-owned buildings in the city.

James Limited uses the perpetual inventory system to account for inventory.

The terms of the agreement are as follows:

1. Chaka Limited will place a non-cancellable order for 100 electricity supply units with James Limited on 1 October 2019.
2. James Limited will acquire the units from a supplier for R500 per unit and deliver them to Chaka Limited on 30 December 2019, supplied at R2 000 per unit.
3. The electricity supply units were fitted on 3 January 2020.
4. The initial fitment of the unit and the maintenance service for 2 years will be provided free to Chaka Limited.
5. The costs of the fitment are currently R50 per unit and the initial maintenance costs are currently R150 per unit per annum.
6. Normal market-related mark-up on the cost of fitment and maintenance is 20%.
7. The maintenance costs are increased to R250 at the end of 2019 across the industry.
8. The selling price will be settled in full on 30 June 2020.
9. The financing component is considered insignificant.

You are required to:

Problem 1: Discuss, with reference to IFRS15, how many performance obligations there are in the contract.

Problem 2: Calculate and allocate the transaction price for the contract to supply, fit, and maintain the electricity supply units.

Problem 3: Prepare the general journals to account for the contract with Chaka Limited in the financial statements of James Limited for the years ended 31 December 2019 and 31 December 2020.