Warranty in a customer contract
An assurance-type warranty that promises the product complies with agreed specifications is generally accounted for under IAS 37 as a provision, unless the customer can purchase it separately or it provides an additional distinct service. A service-type warranty is a separate IFRS 15 performance obligation; allocate transaction price and recognise revenue as that service is provided. Assess contract terms and applicable requirements.
Worked example
A product is sold with a standard defect warranty and an optional two-year maintenance service. The standard defect warranty is assessed under IAS 37; the separately purchased maintenance service is a performance obligation under IFRS 15.
Common mistake
Treating every warranty as a separate performance obligation or failing to recognise a provision for an assurance-type warranty when IAS 37 criteria are met.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |