Chato Company sells electrical goods covered by a one – year warranty for any defects. Of the salesof P70,000,000 for the year, the entity estimated that 3% will have major defects, 5% will have aminor defect and 92% will have no defect. The cost of repairs would be P5,000,000 if all theproducts sold had major defect and P3,000,000 if all had minor defect.What amount should be recognized as a warranty provision?
Chato Company sells electrical goods covered by a one – year warranty for any defects. Of the salesof P70,000,000 for the year, the entity estimated that 3% will have major defects, 5% will have aminor defect and 92% will have no defect. The cost of repairs would be P5,000,000 if all theproducts sold had major defect and P3,000,000 if all had minor defect.What amount should be recognized as a warranty provision?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Chato Company sells electrical goods covered by a one – year warranty for any defects. Of the salesof P70,000,000 for the year, the entity estimated that 3% will have major defects, 5% will have aminor defect and 92% will have no defect. The cost of repairs would be P5,000,000 if all theproducts sold had major defect and P3,000,000 if all had minor defect.What amount should be recognized as a warranty provision?
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