Topic: Provisions and events after the reporting period. Westham plc sells televisions, and provides a one-year...
Topic: Provisions and events after the reporting period.
Westham plc sells televisions, and provides a one-year warranty against faults occurring after sale. Westham estimates that if all goods with an outstanding warranty at its statement of financial position date of 31 March 2017 need minor repairs the total cost would be £1 million. If all the products under warranty needed major repairs the total cost would be £3 million. At 31 March 2018 these amounts have risen to £8 million for major repair and £2 million for minor. Based on previous years' experience, Westham estimates that 70% of the products will require no repairs, 27% will require minor repairs, and 3% will require major repairs.
During the year ended 31 March 2018 (before ending the year) actual costs of repairs under the warranty amounted to £100,000.
Required:
Explain the accounting treatment of the warranty in Westham plc's financial statements for the year ended 31 March 2018, quantifying figures which would appear in the income statement and statement of financial position.
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Topic: Provisions and events after the reporting period.
Westham plc sells televisions, and provides a one-year...
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