$($a$)$ A manufacturer gives warranties at the time of sale to purchasers of its product.

Under the terms of the contract for sale, the manufacturer undertakes to make good

by repair or replacement, manufacturing defects that become apparent within three

years from the date of sale. On past experience, it is probable that there will be

some claims under the warranties.

Past experience suggests that $75\%$ of the goods sold will have no defects, $20\%$ will

have minor defects and $5\%$ will have major defects. If minor defects were detected

in all products sold, the cost of repairs would be $$1,000,000$; if major defects were

detected in all products sold, the cost would be $$4,000,000.$

$($b$)$ During the year ended $30$ June $2014,$ Parent company guarantees borrowings of

Subsidiary company which amounts to $$1,000,000.$ At the time of the guarantee,

Subsidiary$$s$$ financial position was sound. During the year ended $30$ June $2015,$ the

financial condition of Subsidiary company deteriorates and at $30$ June $2015$

Subsidiary company files for protection from its creditors.

Requirements:

$1)$ How should this be treated in Parent$$s financial statements for the year ended

i$)30$ June $2014$ and $(15$ marks$)$

ii$)30$ June $2015.$