QUESTION 3:

Star Ltd manufactures and sells a motorbike. It is sold with a two-year manufacturers warranty. It also offers customers the option to purchase an extended warranty on its product. Under the extended warranty, Star will repair products that become defective within three years from the date the manufacturers warranty ends. If at the time of purchasing a scooter, a customer does not purchase an extended warranty, the customer can purchase an extended warranty separately at a later stage. The combined sales price for a motorbike plus an extended warranty is 19,300. Separately, a scooter can be purchased for 18,000 and the extended warranty can be purchased for 2,000. For the year ending 31 Dec 2020, Start Ltd has sold 5,300 units of motorbike.

Required: Explain how this transaction should be accounted for in financial statements for year ending 31 Dec 2020.

show formulas and explanations. paste in answer in screenshot.