Question 1

ABC sells goods with a 3 year warranty attached. Warranties provisions are calculated as a percentage of annual sales, based on historical data and are discounted to present value using the government bond rate. Relevant data is as follows:

End of year	Percentage of sales $ to be incurred as warranty expenses (incremental)	Discount Rate
1	2%	6.0%
2	3%	6.5%
3	5%	6.9%

Total sales for the year ended 30 June 2018 were $2 million.

Required

Calculate the total provisions for warranties that should be set aside in relation to 30 June 2018 financial year sales. (5 marks)