Moolie Ltd is a manufacturer of surfboards. Pursuant to the sales terms, it gives warranties at the time of sales to purchasers of the surfboards for manufacturing defects that become apparent within two years from the date of sale. Based on past experience, Moolie is predicted to have 5% of the sales returned on manufacturing defects.

Required 

Figure 9.2 provides a useful decision tree to help management make judgements on classifying a liability. Using this decision tree, determine how the case should be recorded.