Question

1. Sotoma Pty Ltd gives warranties at the time of sale to purchasers of its products (computer chips). Under the terms of the contract for sale, the manufacturer undertakes to remedy, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. As this is the first year that the warranty has been available, there is no data from the firm to indicate whether there will be claims under the warranties. However, industry research suggests that it is likely that such claims will be forthcoming. It would be much appreciated if you could kindly advise the accounting team whether the company should recognise a provision. business letter

Answer 1

Answer:-

1. Warranty should be costs in a similar period the item is being sold. This passes by the coordinating standard of bookkeeping.

2. Coordinating guideline states income and costs relating to a specific year ought to be perceived in that year itself.

3. Discover the Warranty costs for comparative items in the market .

4. It can likewise be assessed by approximating the quantity of deficient items underway.

5. Journal Entry

Warranty Expenses A/c Debit

To Warranty Liability A/c Credit

6. As and when the clients Claim the Warranty

Warranty Liability A/c Debit

To Inventory A/c Credit

7. This guarantees benefit goes somewhere near the arrangement we made for Warranty for the deals made in that year. In this manner clinging to coordinating guideline.

8. As cases happen therefore the accounting report will be affected as Warranty risk and stock would decrease