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A recent graduate, Bob, struggled to find work as an accountant

Accounting

A recent graduate, Bob, struggled to find work as an accountant. While at home one day, he noticed large trucks with full-grown trees driving past. They were going to a new housing 9development in his street, where landscapers were developing the gardens and planting mature trees as instant landscape features. Because Bob had grown up in a farming area and worked on farms in his vacations, he had some knowledge about growing trees and decided that he would do some research and find a gap in the market for something similar. He and his friend Neo, who had some inherited money, started a small business selling fullgrown palm trees. The palm trees were in high demand from municipalities all over South Africa. While visiting his university lecturer. Bob asked her advice as to what would be the best way to register the business so that it would benefit both himself and Neo. (Bob had no start-up capital of his own and the two friends would have to borrow more money to get the business going). As he left the university area, he noticed a vacant piece of land that had previously been used as a fruit farm. It looked fertile and suitable for growing young palm trees and also storing sourced (purchased) older palm trees. Once Neo had agreed and become involved in this business idea, the two friends decided to [put in an offer to purchase the property on 1 July after the registration of their business. A purchase price of N$ 900 000 was paid on 31 July 20x0 The property was then registered in the deeds office on 15 August 20x0 in the name of Breezy Palms Enterprises. The property was now theirs to do with as they pleased. The purchased price was paid from Noes capital of N$ 30 000 and Loan (from One Love Bank). This agreement was entered into on 31 July 20x0 at an interest rate of 10% payable monthly with the capital portion of the loan being payable in monthly instalments over a period of 10 years. On 1 September, they brought in another company, Trees Planters CC, who would supply and plant the trees that would generate revenue over many years. Trees Planters charged them N$ 10 000 for every hectare of trees planted. Bob and Neo then agreed to an additional maintenance contract with Trees Planters CC, stipulating that they would maintain and prune the young trees to ensure that they grew upright over the next 10 years , for an annual fee of N$ 15 000. During the current year, Breezy Palms Enterprise incurred N$ 150 000 on the purchase and planting of the trees was well as N$ 15 000 on the pruning and maintenance of the trees. Bob and Neo took care of the sourcing of mature trees themselves, which cost them N$ 3 000 a month in adverting, labor and transport. Bob and Neo employed an expert to who needs to do a profitability study. The report from the expert revealed that they could expect a return on investment of 23% over the period of 10 years. The accountants showed every cost incurred as an expense in the current year. The financial director feels that a part of the transactions above may be stated as an asset. Financial Accounting 1B (AFE3692) Individual Assignment Due date: 12 October 2020 4 REQUIRED: Provide a well- reasoned argument with reference to the accounting frameworks as to whether the treatment of the above transactions was appropriate. Your answer should distinguish between these transactions 1. The purchase of land 2. Loan from One Love Bank 3. Planting, pruning and maintenance of young trees.

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