Walsh plc sells wash machines and provides a one-year warranty against faults occurring after sale. Platt estimates that if all goods under warranty at its statement of financial position date of 31 December 2022 need minor repairs the total cost would be £ 6 million. If all the products under warranty needed minor repairs the total cost would be £ 24 million. At 31 December 2023 these amounts have risen to £ 7 million and £ 26 million respectively. Based on previous years` experience, Walsh estimates that the 80% of the products will require no repairs, 18% will require minor repairs and 2% will require major repairs. During the year ended 31 December 2023 actual costs of repair under the warranty amounted to £ 1,400,000. Required: a. b. What are the distinctions between liabilities, provisions and contingent liabilities under IAS 37 “Provisions”? Explain the accounting treatment of the warranty in Walsh plc`s financial statements for the year ended 31 December 2023, qualifying figures which would appear in the income statement and statement of financial position.
Walsh plc sells wash machines and provides a one-year warranty against faults occurring
after sale. Platt estimates that if all goods under warranty at its statement of financial position
date of 31 December 2022 need minor repairs the total cost would be £ 6 million. If all the
products under warranty needed minor repairs the total cost would be £ 24 million. At 31
December 2023 these amounts have risen to £ 7 million and £ 26 million respectively.
Based on previous years` experience, Walsh estimates that the 80% of the products will
require no repairs, 18% will require minor repairs and 2% will require major repairs.
During the year ended 31 December 2023 actual costs of repair under the warranty
amounted to £ 1,400,000.
Required:
a.
b.
What are the distinctions between liabilities, provisions and contingent liabilities under
IAS 37 “Provisions”?
Explain the accounting treatment of the warranty in Walsh plc`s financial statements
for the year ended 31 December 2023, qualifying figures which would appear in the
income statement and statement of financial position.
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