Warranties While BeFit have engaged high-quality local producers of fitness clothing as collaborators for their products, some manufacturing defects are unavoidable. For the year ended 30 June 2022, BeFit recorded net sales of $84,700 (GST inclusive) and sales returns of $1,100 (GST inclusive). Based on prior period, around 1% of net sales are claimed as warranties. The owners believe the warranty amount should be expensed in the period when the claims take places, which is normally in the period following the sale.

Question 6: With reference to the Conceptual Framework, justify whether you agree with the owners on the recording of warranties as an expense only in the period the claims are made. If not, explain how warranties for the year ended 30 June 2022 should be accounted for with the necessary double-entry.