Past events |

Sales warranties

The Case: Example on recognising and measuring provisions  Sales warranties

A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of the contract for sale, the manufacturer undertakes to make good, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. On the basis of experience, it is probable (ie more likely than not) that there will be some claims under the warranties.

Considerations Sales warranties

Present obligation as a result of a past obligating event—the obligating event is the sale of the product with a warranty, which gives rise to a legal obligation.

An outflow of resources embodying economic benefits in settlement—probable for … Read more

IAS 41 Agricultural activity and produce

The objective of IAS 41 is to prescribe the accounting treatment and disclosures related to agricultural activity.

Scope IAS 41 Agricultural activity and produce

IAS 41 shall be applied to account for the following when they relate to agricultural activity:

  1. biological assets, except for bearer plants;
  2. agricultural produce at the point of harvest; and
  3. conditional or unconditional grants relating to a biological asset measured at its fair value less costs to sell.

IAS 41 does not apply to:

  1. land related to agricultural activity;
  2. bearer plants related to agricultural activity. However, IAS 41 applies to the produce on those bearer plants;
  3. government grants related to bearer plants;
  4. intangible assets related to agricultural activity; and
  5. right-of-use assets
Read more

Present obligation as a result of past event

Obligation: A duty or responsibility to act or perform in a certain way. Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. Obligations also arise, however, from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner.

It is important to distinguish between a present obligation and a future commitment. A management decision to purchase assets in the future does not, in itself, give rise to a present obligation.

Settlement of a present obligation will involve the entity giving up resources embodying economic benefits in order to satisfy the claim of the other party. This may be done in various ways, not just by payment … Read more


Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. This is normally the case, for example, with amounts payable for goods and services received. However, obligations do not have to be legally binding.

If, for example, an entity decides as a matter of policy to rectify faults in its products even when these become apparent after the warranty period has expired, the costs that are expected to be incurred in respect of goods already sold are liabilities. What are obligations?

Obligations do not include future commitments. What are obligations?

Some liabilities can be measured only by using a substantial degree of estimation. Some entities describe these liabilities as provisions. In some countries, … Read more

Transition to IFRS 17 Insurance contracts

IFRS 17 should be applied for annual reporting periods beginning on or after 1 January 2021. FRS 17 supersedes IFRS 4 [IFRS 17 C34]. Early adoption is permitted if the entity applies IFRS 9 and IFRS 15 not later than on the date of initial application of IFRS 17. 1 January 2021 is the date of initial application of IFRS 17 unless an entity early adopts IFRS 17 [IFRS 17 C1]. The transition date is the beginning of the reporting period immediately preceding the date of initial application. Therefore, if an entity adopts on 1 January 2021, the transition date is 1 January 2020 [IFRS 17 C2].

An entity should apply IFRS 17 retrospectively from the Read more

Information collection insurance contracts

The objective of estimating future cash flows is to determine the expected value, or the probability-weighted mean, of the full range of possible outcomes, considering all reasonable and supportable information available at the reporting date without undue cost or effort [IFRS 17 B37]. Information collection insurance contracts

An entity need not identify every possible scenario. The complexity of techniques an entity uses to estimate the full range of outcomes will depend on the complexity of the cash flows of a group of insurance contracts and the underlying factors that drive cash flows. In some cases, relatively simple modelling may give an answer within an acceptable range of precision, without the need for many detailed simulations. However, in Read more