Prepare bookkeeping records for the information in question B11.1.

Data From Question B11.1:

The Washing Machine Repair Company gives a warranty of no-cost rectification of unsatisfactory repairs. It has turnover from repair contracts recorded as:

Year                           Amount of turnover
                                                        £
1................................................  80,000
2................................................  90,000

Based on previous experience the manager makes a provision of 10% of turnover each year for warranty costs. In respect of the work done during years 1 and 2, repairs under warranty are carried out as follows:

Required:

(a) Show how this information would be recorded in the financial statements of the Washing Machine Repair Company.

(b) Explain how the financial statements would appear if the company made no provision for warranty costs but charged them to profit and loss account when incurred.

Transcribed Image Text:

Date of repair work Amount in respect Amount in respect Total of Year 1 turnover of Year 2 turnover 1 4,500 4,500 2 3,200 4,800 8,000 3 5,000 5,000