Extended warranty
Assess whether the customer can purchase the warranty separately or whether it provides a service beyond assurance that the product meets agreed specifications. If it is a separate IFRS 15 performance obligation, allocate transaction price based on the applicable rules and recognise the allocated revenue as the service is provided. The label extended warranty alone does not determine the accounting; inspect the actual terms.
Worked example
A customer buys an optional two-year maintenance warranty for $240. If it is a separate performance obligation satisfied evenly over the term, the entity recognises $10 revenue per month, assuming the straight-line measure reflects progress.
Common mistake
Recognising the full $240 as revenue immediately when the separate service has not yet been provided, or assuming every extended warranty has identical contractual terms.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |