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Need Help! !Chapter 5—Question 2

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Need Help! !Chapter 5—Question 2

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • October 24, 2015 at 8:46 am #278687
    Crystal
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    The answer for this quetsion is A. However, would anybody explain for me that why the 1st item is under creating a provision?

    My understanding is since only 5% of sales give rise to a warranty claim, so it is under possible,

    October 24, 2015 at 1:05 pm #278716
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    It is virtually certain that there will be warranty claims. How many there will be this year may be 5% (or maybe more or maybe less) but it is virtually certain that there will be some claims.

    Think of shop selling TV’s. In the past 5% of TV’s have come back for repairs. How likely is it that this year some will come back for repairs? It is virtually certain (it will be a miracle if none come back this year). In estimating the amount of the provision, you would probably use 5% unless you thought that for some reason it might be different that 5%, but you are not asked to estimate the amount.

    November 5, 2015 at 1:24 am #280553
    Crystal
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Thank you Sir, I got it. Basically, the 5% of sales is the number of how many warranty claim, not the possibility of having warranty claim.

    November 6, 2015 at 3:42 pm #280835
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    That is correct 🙂

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