Example of Warranty
The
warranty is the assurance given by the seller to the buyer for future repair or
replacement. The repairs cost is to be recognized as provision. When it is part
of sale contract and a reliable estimated of future repair can be made.
Example of Warranty
ABC
& Co has a sale of amounting $ 200,000. It mentioned on each sale invoice
that goods can be replaced free of cost within one year. It is expected that
30% of sales will be repaired and repair cost is almost same the sale value.
Solution
A
provision of $ 60,000 is required i.e. 30% (200,000).
|
Date
|
Particulars
|
Dr.
|
Cr.
|
|
|
Repair cost
|
$ 60,000
|
|
|
|
Provision for Repair
|
|
$ 60,000
|
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