Estimated Liabilities

Question 1

Definition and Examples

Answer 1

Estimated Liabilities are obligations that exist at the end of the reporting period but whose amount is not known

Examples:
Warranties
Premiums
Award points
Gift Certificates
and Bonuses

Question 2

Notes for Warranties:
1. The obligation arises at the point of sale. Hence, kahit anong year pa expected na mag pagawa, irerecognize padin dapat LAHAT at the time of sale

2. Entry to recognize
   Dr. Warranty Expense
   Cr. Estimated Warranty Liability
3. When actual cost incurred:
   Dr. Est. Warranty Liabs
   Cr. Cash

Sobrang dali lang nyan. Kayang kaya mo yan.

4. Sale of Warranty - Seller may offer an EXTENDED warranty at additional cost. Hence, sale is recorded separately:
   Unearned Warranty Revenue
   Then amortized mo lang.

Question 3

Notes for Premiums:
1. Challenge lang dito is pag compute ng Premium Expense. Okay ilatag mo.

Answer 3

Sales in Units xx
x Estimated Wrappers to be redeemed xx
=Estimated Wrappers to be presented for redemption xx
Divide by: Required no. of wrappers for redemption xx
Estimated wrappers to be distributed xx
x NET COST OF PREMIUM (purchase cost less remittance) xx
=Premium Expense xx

Question 4

Notes for Premiums:
2. Entries:
a. To record the purchase of premiums
Dr. Premiums
Cr. Cash

b. To record Premium Expense:
Dr. Premium Expense
Cr. Estimated Liability for Premiums

c. IMPT: to record actual redemption:
Dr. Cash (Remittance cost)
Dr. Estimated Liabs for Premiums (Net cost)
Cr. Premiums (Purchase Cost)