RE: PROVISIONS

we are bodyline and header is our supplier. Sales in the last 28 days of trading year to 30 september 20X3 were 1750000. Past trends reliably indicate that 10% of all goods are returned under the 29 day return facility. These are not faulty goods. Of these 70% are later resold at the normal selling price and the remaining 30% are sold as sale items at half the normal retail price.

Out of sale of 1,750,000 20% relate to goods manufactured by header who sells stuff to Bodyline at a discounted price and at a markup on cost of 40% and so does not accept any warranty claims so we have to bear the cost of the Manufacturing faults of items bought by header so no refund is given by header but the other 80% sell at a mark up of 25% and we can recover the cost of goods that are returned as faulty from them

The issue is with the 28 day return policy provision…

Here’s what they’ve done at the back:

*1.75m x 10% x 30% x 50% = 26250
1.75m x 20% x 10% x 70% x 40/140 = 7000
1.75m x 80% x 10% x 70% x 25/125 = 19600

*Your coment No! “because there is an transfer of economic benefit which is half the selling price” In fact, the transfer of benefit equates to ((selling price / 2) – original cost)