The following items have to be considered in finalising the financial statements of Q, a limited liability company:

(1) The company gives warranties on its products. The companys statistics show that about 5% of sales give rise

to a warranty claim.

(2) The company has guaranteed the overdraft of another company. The likelihood of a liability arising under the

guarantee is assessed as possible.

What is the correct action to be taken in the financial statements for these items?

Item 1 Item 2

A create a provision disclose by note only

B disclose by note only no action

C create a provision create a provision

D disclose by note only disclose by note only