Review the financial statement extract provided below:

Required:
1. In general, what is a provision?
2. Is this a current or both current and long-term warranty provision?
3. The provision for warranty might be a legal liability or a constructive liability. What is the meaning of “constructive liability” compared to a “legal liability”?
4. What is the meaning of the $1,164 “additional provision created”?
5. How would the $1,164 be measured, assuming a large population of potential claims?
6. What is the meaning of the $690 “utilized during the year”?
7. What is the meaning of the $80 “unwinding of discount”?

Transcribed Image Text:

(amounts in thousands) Balance, 1 January 20X5 Additional provision created Utilized during the year Unwinding of discount Balance, 31 December 20X5 Provision for Warranty $1,062 1,164 (690) 80 $1,616