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P 1 3 . 1 2 Renew Energy Ltd . ( REL ) manufactures and sells directly to customers a special long - lasting rechargeable
P Renew Energy LtdREL manufactures and sells directly to customers a special longlasting rechargeable battery for use in digital electronic equipment. Each battery sold comes with a guarantee that the company will replace free of charge any battery that is found to be defective within six months from the end of the month in which the battery was sold. On June the Warranty Liability account had a balance of $ but by December this amount had been reduced to $ by charges for batteries returned.
REL has been in business for many years and has consistently experienced an return rate. However, effective October because of a change in the manufacturing process, the rate increased to a total of Each battery is stamped with a date at the time of sale so that REL has developed information on the likely pattern of returns during the sixmonth period, starting with the month following the sale. Assume no batteries are returned in the month of sale.
Month Following Sale
of Total Returns Expected in the Month
st
nd
rd
th
th
th
For example, for January sales, of the returns are expected in February, in March, and so on Sales of these batteries for the second half of were:
Month
Sales Amount
July
$
August
September
October
November
December
RELs warranty also covers the payment of the freight cost on defective batteries returned and on new batteries sent as replacements. This freight cost is of the sales price of the batteries returned. The manufacturing cost of a battery is roughly of its sales price, and the salvage value of the returned batteries averages of the sales price. Assume that REL follows IFRS and that it uses the expense approach to account for warranties.
Instructions
Calculate the warranty expense that will be reported for the July to December period.
Calculate the amount of the accrual that you would expect in the Warranty Liability account as at December based on the above likely pattern of returns.
Would your answer to any of the above situations change if REL followed ASPE? Bramble Energy LtdBEL manufactures and sells directly to customers a special longlasting rechargeable battery for use in digital
electronic equipment. Each battery sold comes with a guarantee that the company will replace free of charge any battery that is found
to be defective within six months from the end of the month in which the battery was sold. On June the Warranty Liability
account had a balance of $ but by December this amount had been reduced to $ by charges for batteries
returned.
BEL has been in business for many years and has consistently experienced an return rate. However, effective October
because of a change in the manufacturing process, the rate increased to a total of Each battery is stamped with a date at the time
of sale so that BEL has developed information on the likely pattern of returns during the sixmonth period, starting with the month
following the sale. Assume no batteries are returned in the month of sale. For example, for January sales, of the returns are expected in February, in March, and so on Sales of these batteries for the
second half of were:
BEL's warranty also covers the payment of the freight cost on defective batteries returned and on new batteries sent as replacements.
This freight cost is of the sales price of the batteries returned. The manufacturing cost of a battery is roughly of its sales
price, and the salvage value of the returned batteries averages of the sales price. Assume that BEL follows IFRS and that it uses
the expense approach to account for warranties. Your answer is incorrect.
Calculate the warranty expense that will be reported for the July to December period.
Warranty Expense
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