Question
The following disclosures were provided by Siemens AG in its 2014 annual report: Product-related expenses Provisions for estimated costs related to product warranties are recorded
The following disclosures were provided by Siemens AG in its 2014 annual report:
Product-related expenses
Provisions for estimated costs related to product warranties are recorded in line item Cost of sales at the time
the related sale is recognized, and are established on an individual basis, except for the standard product
business. The estimates reflect historic experience of warranty costs, as well as information regarding prod-
uct failure experienced during construction, installation or testing of products. In the case of new products,
expert opinions and industry data are also taken into consideration in estimating product warranty provisions.
Provisions | ||
In Millions of | 2014 | 2013 |
Beginning Balance | 3,350 | 3,405 |
Additions | 1,778 | 1,544 |
Usage | (771) | (828) |
Reversals | (657) | (683) |
Translation differences and other | 23 | (88) |
Ending Balance | 3,721 | 3,350 |
. The Provision that Siemens reports is an estimated warranty liability. What would constitute
additions to the provision? Prepare a journal entry to record this addition.
b. What constitutes usage of the provision? Besides the provision, what other accounts are
likely to be affected by usage? Prepare a journal entry to record usage of 771 million.
c. Reversals are corrections of previous estimates of warranty obligations. Why would it be
useful to report reversals separately from additions?
d. Siemens reported sales revenue of 71,920 million in 2014 and 73,445 in 2013. Calculate the
ratio of warranty expense to sales for each yea
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started