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What five criteria must be met to ensure a contract exists

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Reference no: EM132990551

Style It Limited signed a contract with Transformers (the customer) on the 1 June 2020. The terms of the contract included the following:

  • Style It Limited would supply and install a fixed 8 plate state of the art gas stove on the 1 July 2020 after which it would be required to supply and install the latest extractor fan with built in lighting and temperature control in the kitchen
  • The customer promised consideration of R25 000 payable by the 30 th of September at the latest after both the stove and extractor are installed.
  • The contract is cancellable in the event of non-performance

The stand-alone selling prices for the supplied and fitted products are as follows:

Gas Stove R20 000

Extractor R5 000

  • Style It Limited supply and install the stove on the 1 st of July as agreed and the extractor on the 5 th of August. Control over the stove and extractor passes to Transformers on this day. Amount owing by Transformers is paid over on the 25 September 2020.

REQUIRED:

Problem 1. Prepare the journal entries for the year ended 31 st December 2020 in respect of the above transactions in the books of Style It Limited.

Problem 2. What five criteria must be met to ensure a contract exists? 

Problem 3. What is a wholly unperformed contract?

Reference no: EM132990551

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