- This topic has 3 replies, 2 voices, and was last updated 3 years ago by
.
- Posts
Wanda Co allows customers to return faulty goods within 14 days of purchase. At 30November 20X5 a provision of $6,548 was made for sales returns. At 30 November 20X6,the provision was re-calculated and should now be $7,634.
What should be reported in Wanda Co’s statement of profit or loss for the year to31 October 20X6 in respect of the provision?
Solution:
A credit of $1,086 (2 marks)Dear sir,I want to know why the $1,086 was recorded as a charge?I think if provision increase,it should be recorded as a credit.I can’t understand why.And when the provision should record as a charge,when the provision should record as a credit?Please help me.Thank you very much.
Just as with liabilities, the provision is a credit balance on the SOFP.
So to increase the provision we credit the provision in the SOFP and debit the cost of increasing it in the SOPL.
It seems that either you have copied the dates wrongly (and the provision actually decreased over the year) or there is a mistake in your book.
Thank you,Sir.I think it is a mistake in the book.At first I choosed the answer is “A charge of $1,086″,but the correct answer given in the book is”A credit of $1,086”.
- The topic ‘Provision and contingencies’ is closed to new replies.