Revenue – ifrs 15 handbook

10.2.2 
Distinguishing between an assurance- and a service-type 
warranty
An entity distinguishes between the types of distinct product warranties as follows.
No
Yes
No
Account for the
warranty or part
of the warranty
as a
performance
obligation
Does the promised warranty, or a part
of the promised warranty, provide the
customer with a service in addition to the
assurance that the product complies
agreed specifications?
with
Does the customer have the option to
purchase the warranty separately?
Yes
Not a performance obligation. Account for
under the provisions standard
Service warranty
Assurance warranty
IFRS 15.B31
To assess whether a warranty provides a customer with an additional service, an 
entity considers factors such as:
– 
whether the warranty is required by law:
because such requirements typically 
exist to protect customers from the risk of purchasing defective products;
– 
the length of the warranty coverage period:
because the longer the coverage 
period, the more likely it is that the entity is providing a service, rather than just 
guaranteeing compliance with an agreed specification; and
– 
the nature of the tasks
that the entity promises to perform.
Example 2 – Lifetime warranty
IFRS 15.B31
Luggage Company L is a leading manufacturer in the luggage industry. L 
provides a lifetime warranty on all suitcases. If a suitcase is broken or damaged, 
then L will repair or replace it free of charge.
There are currently no regulations in the luggage industry on warranties.

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10 Other application issues | 243
10.2 Warranties
| 
L assesses whether the lifetime warranty is a service-type warranty as follows.