Acca financial Accounting (FA) Study Text ac ca (FA)

Should a provision be recognised in the financial statements for the 

year ended 31 December 20X6 for goods sold before the year-end 

which may be returned during 20X7? 

 

 

Solution to Illustration 2 

 

The policy is well known and creates a valid expectation that the store will 

give refunds to customers who return goods. At the year-end date, there 

is a constructive obligation. It is probable some refunds will be made. 

The obligation can be reliably measured, perhaps by using expected 

values based upon past experience of what proportion or value of goods 

sold are actually returned by customers. 

Conclusion:

 A provision is required and a reliable estimate of the 

amount should be made for inclusion in the financial statements. 

 

 

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