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Question 1 (con't) Part B Gadget Ltd. offers a 12-month warranty to its customers with the mobile gadgets that it sells. Warranty liabilities are estimated
Question 1 (con't) Part B Gadget Ltd. offers a 12-month warranty to its customers with the mobile gadgets that it sells. Warranty liabilities are estimated at 15% of the budgeted revenue for the next financial year. On July 1, 2020, the balance of the Warranty Provision account was $63,000 (Normal balance). During the year ended June 30, 2021, warranty expenses are $80,000. Warranty claims are in the form of spare parts. The budget revenue from the sale of mobile gadgets for the next financial year is $500,000. There have been no changes in suppliers, product quality or prices. Below is the claim history of Gadget Ltd for the past two years: I Warranty Claims Financial Year 2019 48,000 Financial Year 2020 64,000 Budgeted Revenue 300,000 400,000 Required: Construct the "Warranty Provision' account for the financial year 2021. Do you think the warranty provisions made are adequate to cover warranty claims for years from 2019 to 2021? Give a reason for your answer. Show your working to support your reason
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