P1.A.2.5 Valuation of Liabilities

Question 1

Types of Warranties

P1.A.2.5 Valuation of Liabilities

Answer 1

1. Service: revenue recognition. Treated as a performance obligation in terms of accruing revenue.
2. Assurance: reserve liability based on an estimate of associated costs

Question 2

Sales Warranty Approach

P1.A.2.5 Valuation of Liabilities

Answer 2

The sales warranty approach should be used when the warranty is sold separately from the goods or services.

Question 3

Expense Warranty Approach

P1.A.2.5 Valuation of Liabilities

Answer 3

The expense warranty approach is used when the goods or services and the warranty are sold together.