(iv) Tyre recently undertook a sales campaign whereby customers can obtain free car access

(iv) Tyre recently undertook a sales campaign whereby customers can obtain free car accessories, by presenting a

coupon, which has been included in an advertisement in a national newspaper, on the purchase of a vehicle.

The offer is valid for a limited time period from 1 January 2006 until 31 July 2006. The management are unsure

as to how to treat this offer in the financial statements for the year ended 31 May 2006.

(5 marks)

Required:

Advise the directors of Tyre on how to treat the above items in the financial statements for the year ended

31 May 2006.

(The mark allocation is shown against each of the above items)

(iv) Car accessoriesAn obligation should not be recognised for the coupons and no provision created under IAS37 ‘Provisions, ContingentLiabilities and Contingent Assets’. A provision should only be recognised where there is an obligating event. There has