Solar Pic sells their frequency counters to various customers. 1) In contract X with the customer,...

 

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Solar Pic sells their frequency counters to various customers. 1) In contract X with the customer, Solar promises to deliver 50 frequency counters for a total price of £300,000. There is also a clause about free repair and maintenance service within three years after purchase. 2) In contract Y with the customer, Solar promises to deliver 25 frequency counters for a total price of £150,000. The contract does not include any warranty promises. However, it is well-known that Solar has provided one-year free repair service in the past. One particular Product Z, one type of electric board, is sold with a six-month manufacturer's warranty. Solar Plc also offers customers the option to purchase an extended warranty on Product Z. Under the extended warranty, Solar Plc will repair products that become defective within 24 months from the date the manufacturer's warranty ends. Product Z is sold for £530 per unit. A customer can purchase Product Z plus the extended warranty at a combined price of £610. As at 30 September 2021, Solar Plc estimates, based on its past experience and the number of units of Product Z sold in 2021, that costs of £18,000 will be incurred to repair products that become defective within six months of their sale. Required: • Identify the performance obligations for contracts X and Y and explain your reasons with reference to related IFRS standards. • Explain how the sale of Product Z plus the related warranties should be accounted for in the financial statements of Solar Plc. Solar Pic sells their frequency counters to various customers. 1) In contract X with the customer, Solar promises to deliver 50 frequency counters for a total price of £300,000. There is also a clause about free repair and maintenance service within three years after purchase. 2) In contract Y with the customer, Solar promises to deliver 25 frequency counters for a total price of £150,000. The contract does not include any warranty promises. However, it is well-known that Solar has provided one-year free repair service in the past. One particular Product Z, one type of electric board, is sold with a six-month manufacturer's warranty. Solar Plc also offers customers the option to purchase an extended warranty on Product Z. Under the extended warranty, Solar Plc will repair products that become defective within 24 months from the date the manufacturer's warranty ends. Product Z is sold for £530 per unit. A customer can purchase Product Z plus the extended warranty at a combined price of £610. As at 30 September 2021, Solar Plc estimates, based on its past experience and the number of units of Product Z sold in 2021, that costs of £18,000 will be incurred to repair products that become defective within six months of their sale. Required: • Identify the performance obligations for contracts X and Y and explain your reasons with reference to related IFRS standards. • Explain how the sale of Product Z plus the related warranties should be accounted for in the financial statements of Solar Plc.

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Warranties are frequently offered in conjunction with the purchase of a ... View the full answer