Assume that the price S of a risky asset follows a binomial model with S(0) =
$100, u = 10% and d = -10%. The underlying asset pays a dividend of $5 on the odd times, i.e., 1; 3; 5...,
and only if the price is strictly higher than $95. In this market, the risk-free rate is 0% (zero).

You are called to price a European call with strike price K = 87 and expiry date N = 3 with the additional
restriction that during the life of the call the stock price has not exceeded the value of $110.

PART I

(a) Discuss in detail, with reference to the principles of IFRS 15 Revenue from Contracts with Customers, whether Lockdown Health Ltd should recognise the following elements of the revenue contract with Sanitize Ltd as separate performance obligations:

• the testing equipment; • the installation of testing equipment; and • the 12-month warranty.

(b) Assume for this section of the question that there are three separate performance obligations, namely the testing software, testing equipment and training services in the revenue contract with Sanitize Ltd.

Criticise the journal entry that was processed with regards to the allocation of the transaction price for revenue recognition to the separate performance obligations listed above, for the year ended 31 August 2020. Support your answer with calculations and amounts.

Communication skills: logical flow and conclusion

(c) Prepare the journal entries to be processed by Lockdown Health Ltd to account for the transaction with StayHome Ltd for the year ended 31 August 2020.

PART II

Prepare the journal entries in the financial statements of Telecon Ltd to account for all the journal entries arising from the contract with the South African National Defence Force for the year ended 31 August 2020.

Please note:

• Round off all amounts to the nearest Rand. • Journal narrations are not required. • Deferred tax journal entries are not required. • Ignore any Value Added Tax (VAT) implications. • Your answer must comply with International Financial Reporting Standards (IFRS).

Use the information provided below, for Siyeza Traders for the financial year ended
28 February 20.8, to answer questions 1 to 3.
Siyeza Traders is an enterprise that sell motor vehicles in the ordinary course of business at a
mark-up of 45% on cost. During the current financial period, Siyeza Traders sold eight motor
vehicles for a cash price of R80 000 each (15% VAT inclusive). Round your answer off to the
nearest Rand.

1. Income earned from the sale of motor vehicles will be classified under ... in the statement
of profit or loss and other comprehensive income.
(1) Other income
(2) Profit on sale of motor vehicle
(3) Revenue
(4) Gains
(5) Finance income

2. Income earned from the sale of motor vehicles will be disclosed in the statement of profit
or loss and other comprehensive income as an amount of … .
(1) R640 000
(2) R441 379
(3) R544 000
(4) R556 520
(5) R352 000

3. Which of the following statement is correct?
(1) VAT on cash sales will be debited to the VAT output account.
(2) VAT on cash sales will be debited to the VAT input account.
(3) VAT on cash sales will be credited to the VAT output account.
(4) VAT on cash sales will be credited to the VAT input account.
(5) VAT output account will be transferred to the debit side of the VAT control account.

According to a recent survey, a random sample of 100 homes sold in the Baton Rouge metro area had an average sale price of $263,000. If the population standard deviation of home prices is $20,000, what is the 99% confidence interval of the true population average sales price for homes sold in Baton Rouge?

Suppose you invest in 100 shares of Harley-Davidson (HOG) at $40 per share and 200 shares of Yahoo (YHOO) at $25 per share. If the price of HOG increases to $50 and the price of YHOO decreases to $12 per share, what is the return on your portfolio? (Assume no dividends on either stock).

Suppose that the inverse demand function, marginal revenue, marginal cost and total cost for a gizmo product produced by a monopolist are as follows:

P = 100 - 2Q

MR = 100 - 4Q

MC = 2

TC = 10 + 2Q

a. Find the monopolist's profit-maximizing output and price.

b. calculate the monopolist's profit/losses, if any.

c. What is the Lerner Index for this industry.

suppose that the inverse demand function, marginal revenue, marginal cost and total cost for a gizmo product produced by a monopolist are as follows

p=100 -2Q

MR= 100-4Q

MC=2

TC=10+2Q

a. Find the monopolist's profit maximizing output and price.

b. Calculate the monopolist's profit/loss ,if any

c. What is the Lerner Index for this industry

Consider a 3-year maturity annual 9% coupon paying bond with a YTM of 12%.

a. What is the Duration of this bond?

b. What will be the predicted price of this bond if the market yield increases by 100 basis points. [Remember, 100 basis points = 1% point]? You must use the duration (calculated in the part above) to get full points for this question.

The following table shows the short-run cost data of a perfectly competitive firm. Assume that output can only be increased in batches of 100 units.

a. Explain how a firm chooses quantity to maximise profit in a competitive market.

b. What is the firm’s fixed cost? (1 mark)

c. Suppose that market price is $8. What is the profit maximising level of output

d. Suppose that market price is $8. What is the firm’s profit?

e. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm’s profit-maximising output level?

f. What is the price level below which the firm will not produce in the short run?

1. Consider two firms, Firm A and Firm B, who compete as duopolists. Each firm produces an identical product. The total inverse demand curve for the industry is P=250-QA+QB. Firm A has a total cost curve CAQA=100+QA2. Firm B has a total cost curve CBQB=100+2QB.
   1. Suppose for now, only Firm A exists (QB=0). What is the Monopoly equilibrium quantity and price? What is Firm A’s profit?
   2. Find the Nash Cournot equilibrium price and output level. What are the firms’ profits?
   3. Find the equilibrium price and output level in the market if firm A acts as a Stackelberg leader. What are the firms’ profits?
   4. Suppose that the two firms are able to form a cartel. Derive the output each firm will produce, the market price, and the total profit under the cartel solution.
   5. Compare the Cournot, Stackelberg, and Cartel outcomes to the monopoly outcome you calculated in part a.