Micro Ovens is a business that manufactures and sells a variety of microwave ovens and airfryers. As part of the business’ objective to provide the state-of-the-art products and offer their customers value for their money, the business offers their clients a 6-month warranty. Through the warranty, the business offers to pay for repairs on products purchased to no cost to the client, provided that the product requires repairs within 6 months from the date of purchase. Micro Ovens will pay R1 500 per product covered by the warranty for the repairs needed. The business has a financial year end of 31 March 2021 and during the year the business sold a total of 15 000 microwave ovens and air fryers. Based on history, the business can reliably estimate that 10% of all products sold will require repairs within 6 months after the end of the 2021 financial year.

You are required to:

1) In terms of the conceptual framework discuss whether the warranty gives rise to a liability (10 Marks)

2) If the warranty gives rise to a liability, calculate the value of the warranty that would be recorded in the financial records (5 Marks)

Answer rating: 100% (QA)

1 A liability account that reports the estimated amount that a company will have to spend to repair or replace a product during its warranty period Th... View the full answer