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Chapter 13: Question 23Q (page 691)

Explain the accounting for a service-type warranty.

Short Answer

Expert verified

Service type warranties are additional services provided apart from assurance and separately customer pays for the additional service. They are accounted under IFRS 15.

Step by step solution

01

Definition of Service-Type Warranty

Service type warranty is a warranty that is gives something extra apart from assurance like extra services.

02

Accounting for service-type warranty

Service type warranties are those warranties that provide something additional, apart from mere assurance. They give a separate performance obligation because they provide additional service to the customer as they pay separately for such services and they are accounted under IFRS 15.

For example, Product A has a warranty for 1year (assurance warranty) that it will function well till 1year but an additional warranty of providing extra service on such product to the customer is a service type of warranty.

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(a) Assuming no Fair Value Adjustment account balance at the beginning of the year, prepare the adjusting entry at the end of the year if Laura Company’s available-for-sale debt securities have a fair value of \(60,000 below cost.

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Instructions

Prepare the adjusting entries that should be recorded to fairly present the June 30 financial statements.
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