Warranties

Focus plc offers a twelve month warranty on certain goods that it sells. The warranty is paid for at the time the sale is made and included in the Sales Revenues account. The full warranty is valued at 10% of the original sale price of the item and about half of the warranty cover has elapsed by the year end. The total on the Sales Revenue account at the year end stands at 10m.

The accountant proposes putting the full 10m in the Statement of Profit or Loss as revenues for 20X6.

State whether you agree with the accountants proposal regarding the matter mentioned above. You should explain your reasons for agreeing or disagreeing and explain any alternative treatments that you believe the accountant should use.