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It is generally accepted in accounting that where the legal nature of a transaction is different from its commercial substance, the transaction must be accounted for according to its commercial substance a) Discuss the principle of substance over form and how it relates to the fair presentation of financial information b) Dicks Plc sold inventory to Paula on 1 January 2011 for K 240 million when the fair value was K 280 million. The inventory had cost Dicks Plc K 200 million during the year ended 31 January 2010. The agreement with Paula Plc states that Dicks Plc must buy back the inventory from Paula Plc on 31 December 2013 at a price of K 360 million. During the period of its ownership of the inventory, Paula Plc is not allowed to use it or sell it to any other person. During the period of Paula's ownership, the inventory's insurance premiums are reimbursable by Dicks Plc to Paula Plc Required Explain how Dicks Plc must account for the transactions in its Financial statements for the to 31 December 2011 c) On 1 January 2011 Dicks Plc, sold their block of offices located at 2 Jambo way. This sell was motivated by the fact that Dicks wanted to invest more funds in the business so as expand. They block of offices had a cost of K 50 billion. Dicks sold the offices t Standard Chartered Bank Plc for at the cost price to Dicks. Under the agreement, Dicks has the option to repurchase the offices on 31 December, five years later at K 60 billion. Meanwhile, Dicks will continue to use the property as normal throughout the period and will be responsible for the maintenance and insurance during the period. The office block was valued at transfer on 1 January 2011 at K 90 billion and expected to rise in value throughout the five year period. Required Explain and show how Dicks should record the above transaction during the first year following the transfer of the property to Standard Chartered Bank Plc d) On 1 December 2011, Dicks Plc discovered that it had a huge balance of outstanding recelvables balance with a Paula Plc amounting to K 60 billion Dicks then entered Into agreement with TUNWE FInancial Services, a company run by Chipata compound residents who put their funds together to start up a Financial Services Company. Dicks factored these recelvables to TUNWE Fin Services on 1 December 2011. The terms of the agreement were that TUNWE It is generally accepted in accounting that where the legal nature of a transaction is different from its commercial substance, the transaction must be accounted for according to its commercial substance a) Discuss the principle of substance over form and how it relates to the fair presentation of financial information b) Dicks Plc sold inventory to Paula on 1 January 2011 for K 240 million when the fair value was K 280 million. The inventory had cost Dicks Plc K 200 million during the year ended 31 January 2010. The agreement with Paula Plc states that Dicks Plc must buy back the inventory from Paula Plc on 31 December 2013 at a price of K 360 million. During the period of its ownership of the inventory, Paula Plc is not allowed to use it or sell it to any other person. During the period of Paula's ownership, the inventory's insurance premiums are reimbursable by Dicks Plc to Paula Plc Required Explain how Dicks Plc must account for the transactions in its Financial statements for the to 31 December 2011 c) On 1 January 2011 Dicks Plc, sold their block of offices located at 2 Jambo way. This sell was motivated by the fact that Dicks wanted to invest more funds in the business so as expand. They block of offices had a cost of K 50 billion. Dicks sold the offices t Standard Chartered Bank Plc for at the cost price to Dicks. Under the agreement, Dicks has the option to repurchase the offices on 31 December, five years later at K 60 billion. Meanwhile, Dicks will continue to use the property as normal throughout the period and will be responsible for the maintenance and insurance during the period. The office block was valued at transfer on 1 January 2011 at K 90 billion and expected to rise in value throughout the five year period. Required Explain and show how Dicks should record the above transaction during the first year following the transfer of the property to Standard Chartered Bank Plc d) On 1 December 2011, Dicks Plc discovered that it had a huge balance of outstanding recelvables balance with a Paula Plc amounting to K 60 billion Dicks then entered Into agreement with TUNWE FInancial Services, a company run by Chipata compound residents who put their funds together to start up a Financial Services Company. Dicks factored these recelvables to TUNWE Fin Services on 1 December 2011. The terms of the agreement were that TUNWE

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