Question
Volvo Group reports the following information for its product warranty costs as of December 31, 2014, along with provisions and utilizations of warranty liabilities for
Volvo Group reports the following information for its product warranty costs as of December 31, 2014, along with provisions and utilizations of warranty liabilities for the year ended December 31, 2014 (SEK in millions). Provision for product warranty Warranty provisions are estimated with consideration of historical claims statistics, the warranty period, the average time-lag between faults occurring and claims to the company and anticipated changes in quality indexes. Estimated costs for product warranties are recognized as cost of sales when the products are sold. Differences between actual warranty claims and the estimated claims generally affect the recognized expense and provisions in future periods. Refunds from suppliers, that decrease the Volvo Groups warranty costs, are recognized to the extent these are considered to be certain. As of December 31, 2014 (2013) warranty cost provisions amount to 10,367 (9,377). Product warranty liabilities, December 31, 2013 SEK 9,377 Additional provisions to product warranty liabilities 6,214 Utilizations and reductions of product warranty liabilities (5,224 ) Product warranty liabilities, December 31, 2014 10,367 1. & 2. Prepare Volvos journal entry to record its estimated warranty liabilities (provisions) and costs (utilizations) related to its warranty program for 2014. Assume those costs involve replacements taken out of inventory, with no cash involved. (Enter your answers in millions of SEK.)
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