MachineTech sold a machine to a customer for Rs 50 million on 1st July 2019. The machine is covered by a 5-year warranty for all repairs. The price of the machine without the warranty is 45 million and if sold separately the warranty cost a total of Rs 15 million for a 5-year period. MachineTech recognized revenue of Rs 50 million on 1st July 2019 and charged the cost of the machine to cost of sales. Any cost incurred by MachineTech under the warranty during the financial year was charged to cost of sales.

Do you agree with MachineTech’ s revenue recognition for the machine and the warranty in 2019? If not, explain how revenue for the machine and warranty should be recognized for the financial year 2019. Year end is 31st December.

Answer rating: 100% (QA)

Many companies provide or sell additional warranties on their products The new revenue recognition standard ASC 606 Revenue From Contracts with Custom... View the full answer