Example of Constructive Obligation

Example of Constructive Obligation

There is valid expectation that other parties will fulfill some responsibilities and that valid expectation is created by the following actions.

1.      Published Policies

2.      Established Past practices

Example of Constructive Obligation

Company has published a policy that within 6 months goods can be repaired free of cost. It is expected that 20% of customer shall come for repair and total sales during the year was $ 100,000. The repair cost is expected to 5 % of total sales value.

Solution

Date	Particulars	Dr.	Cr.
	Repair account	5,000
	Provision for Repair		5,000