Question 2

A. Golden Bath is a new product of Helsanki Bhd. The company has nationally promoting the product to the consumers. Helsanki Bhd is operating in Country Y which does not put any legal obligation for a company to pay compensation on any return by consumers. In addition, Helsanki Bhd, which is in its 3^rd year of operation, has not established a pattern of practice or published policies that show it will accept certain responsibilities on any products produce by the company.

REQUIRED:

Based on MFRS 137 Provisions, Contingent Liabilities and Contingent Assets explain the accounting treatment practices that should be taken in each of the cases in accordance to the MFRS 137 Provisions, Contingent Liabilities and Contingent Assets. Provide your justifications.

B. Nebron Computer Bhd sells computers for RM2,500, which includes a 3 year warranty that requires company to perform periodic services and to replace defective parts. During 2022, Nebron sold 500 computers by cash. The company has estimated the total 3 year warranty costs at RM250 (RM100 for labour costs and RM150 for spare parts). Assume that all the computer sales occur on 31 December 2022. In 2023, the company incurred actual warranty expense in relative to the 2022 sales of RM12,500 for parts and RM18,750 for labour costs.

REQUIRED:

a) Prepare the necessary journal entries for 2022 and 2023.

b) Determine the balance of warranty liabilities as at 31 December 2023. Show your calculations.

Financial Accounting and Reporting

BKAR1013