A Ltd. provides after sales warranty for two years to its customers. Based on past experience, the company has the following policy for making…

CA Intermediate · Advanced Accounting · MTP · January 2025
A Ltd. provides after sales warranty for two years to its customers. Based on past experience, the company has the following policy for making provision for warranties on the invoice amount, on the remaining balance warranty period. Less than 1 year: 2% provision More than 1 year: 3% provision The company has raised invoices as under : Invoice Date Amount (₹) 11 th Feb, 2022 60,000 25 th Dec, 2022 40,000 04 th Oct, 2023 1,35,000 Calculate the provision to be made for warranty under AS-29 as at 31st March, 2023 and 31st March, 2024. Also compute amount to be debited to P & L account for the year ended 31st March, 2024.

Suggested Answer and Working Notes:

Provision to be made for warranty under AS 29 ‘Provisions, Contingent Liabilities and Contingent Assets' As at 31st March, 2023 = 60,000 x .02 +40,000 x .03 = 1,200 +1,200 = 2,400 As at 31st March, 2024 = 40,000 x .02 +1,35,000 x .03 = 800 +4,050 = 4,850 Amount debited to Profit and Loss Account for year ended 31st March, 2024 ₹ Balance of provision required as on 31.03.2024 4,850 Less: Opening Balance as on 1.4.2023 (2,400) Amount debited to profit and loss account 2,450 Note: No provision will be made on 31st March, 2024 in respect of sales amounting - 60,000 made on 11th February, 2022 as the warranty period of 2 years has already expired.

Topics: AS 29

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