Question

​The company found that one type of TV sold in 2019 had defects. The company sent a press release informing that is going to repair the TV. The company estimates a total cost of $300,000 for the repairs in 2019. The clients have not filed any claim. The company estimates that there is more likely than not that the total payment for repairs will be $2,500,000 after the press release in 2019. How the Company reports this transaction using IFRS? / US GAAP?

Answer 1

Here there are two payments estimates involved, firstly the cost of repairs of $ 300,000 in 2019 and secondly total payment for repairs of $ 2,500,000. So, they are estimates but not actual payments. But reporting for recall of products and reporting for litigation results probability requires the company to record estimated costs of these expenses in financial statements under IFRS as well as under US GAAP. However, for taxation purposes these expenses are deducted only when actual payment is incurred. So these payments will also lead to creation of deffered taxes in financial statements. Hence, reporting of both the expenses will be done in financial statements for accounting purposes as the probability of occurence is almost certain.