Purcell Limited is a manufacturer of swimming pools and provides its customers with warranties at the time of sale. The warranty applies for three years from the date of sale. Past experience shows that there will be some claims under the warranties. The appropriate treatment of this item under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, is to:

Select one:

a. disclose in the notes, but do not recognise in the financial statements;

b. transfer the expected amount of the warranty from retained earnings to a special reserve account in equity.

c. charge the costs directly to profit or loss in the period in which the economic outflows occur;

d. recognise the best estimate of costs as a provision;