An Engineering goods company provides 'after sales warranty' for 2 years to its customers. Based on the past experience, the company has been…

CA Intermediate · Advanced Accounting · PYQS · January 2025
An Engineering goods company provides 'after sales warranty' for 2 years to its customers. Based on the past experience, the company has been following policy for making provision for warranties on the Invoice amount on the remaining balance warranty period: Invoice less than 1 year : 2.5% provision Invoice more than 1 year : 4.5% provision The Company has raised Invoices as under: Invoice Date ₹ 20 th February, 2021 42,000 17 th July, 2022 25,000 27 th January, 2022 47,000 1 st March, 2023 1,10,000 24 th August, 2023 34,000 20 th March, 2024 75,000 You are required to: (i) Calculate the provision to be make for warranty under AS 29 as at 31st March, 2023 and 31st March, 2024: (ii) Also compute the amount to be debited to Profit and Loss 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 = 25,000 x 2.5% +47,000 x 2.5% +1,10,000 x 4.5% = 625 +1,175+4,950 = 6,750 As at 31st March 2024 = 1,10,000x 2.5% +34,000 x 4.5% +75,000 x 4.5% = 2,750 + 1,530+3,375 = 7,655 Amount debited to Statement of Profit and Loss for year ended 31st March 2024 ₹ Balance of provision required as on 31.03.2024 7,655 Less: Opening Balance as on 1.4.2023 (6,750) Amount debited to Statement of Profit and loss 905 Note: No provision will be made on 31st March 2024 in respect of sales amounting 42,000,25,000 and 47,000 made on as the warranty period.

Topics: AS 29

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