I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

How should the items be reflected in the financial statements of Raider Co? 

 

Item 1 

Item 2 

A 

create a provision 

disclose by note only 

B 

disclose by note only 

create a provision 

C 

disclose by note only 

disclose by note only 

D 

no provision or disclosure required 

create a provision 

 

(2 marks) 

54 

Punt Co sells vacuum cleaners with a warranty. Customers are covered for the cost of repairs of 

any manufacturing defect that becomes apparent within the first year of purchase. The company's 

past experience and future expectations indicate the following pattern of likely repairs. 

% of goods sold 

Defects 

Cost of repairs 

  

$'000 

80 None 

– 

12 Minor 

545 

 8 

Major 

800 

The warranty provision brought forward is $99,750.  

What amounts should be recognised in the financial statements of Punt Co relating to the