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

Provisions and Contingencies

Provisions and Contingencies – Introduction

21.1 Provisions and Contingencies applies to all provisions (ie liabilities of uncertain timing or amount), contingent liabilities and contingent assets except those provisions covered by other sections of Provisions and Contigencies. These include provisions relating to:

  1. leases (See Leases). However, this section deals with operating leases that have become onerous.
  2. construction contracts (See Revenue). However this section deals with construction contracts that have become onerous.
  3. employee benefit obligations (See Employee Benefits).
  4. income tax (See Income Tax).
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