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Vermeulen needs some equipment for their Post COVID 19 tour from Erasmus Amplification Ltd. Erasmus Amplification Ltd agrees to manufacture the equipment which has a
Vermeulen needs some equipment for their Post COVID 19 tour from Erasmus Amplification Ltd. Erasmus Amplification Ltd agrees to manufacture the equipment which has a cost of $6,000,000 and provides a 5 year warranty for the equipment The equipment is delivered on 1 July 2021. While there equipment is considered reliable, experience dictates that the following level of repairs will likely be for the period of the warranty, and a discount rate of 10% is appropriate. This should be recognised at the date of sale. Year Value 1 60,000 N 2 48,000 3 36,000 4 4 24,000 5 12,000 Total 180,000 NPV @10% 145,106 By 30 June 2022 the equipment has been found to be much more reliable than expected and no repairs have been necessary to date. The following is now the best estimate of warranty costs Year Value 2 42,000 3 30,000 4 18,000 5 6,000 96,000 NPV @8% 83,308 Required 1. Provide any journal entries for the provision on 1 July 2021 2. Provide any journal entries for the provision on 30 June 2022
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