Warrantys

Question 1

A warranty is recorded as a provision if:

Answer 1

1. The customer doesn’t have the option to buy it separately, or
2. The warranty does not provide the customer with a service along with the assurance of function

Question 2

Two types of warranty

Answer 2

1. Assurance warranty

2. Service type warranty

Question 3

How to account for an assurance warranty

Answer 3

As a provision and record a liability instead of revenue

Question 4

How to account for a Service type warranty

Answer 4

Account for as a separate performance obligation and allocate a portion of the price

Question 5

Factors towards a service being provided for warranty

Answer 5

1. required by law - therefore not separate obligation
2. length of warranty - the longer it is the more likely its separate obligation
3. Nature of the tasks - simple returns are not separate obligations