Warranty provision

Let me get one or two things straight in my mind …

Here’s what you have posted:

“The year end provision for warranty claims has been estimated at $75,000. Warranty costs are charged to admin expenses”

This says to me that there should be a liability on the statement of financial position of $75,000 – am I correct?

“On the information given in the SOPL for the year end, the warranty provision has a credit of $90,000”

This says that, within the statement of profit or loss in the question, there is a negative expense of $90,000 – am I correct?

“The solution added the figure when preparing the SOPL for the year”

I have no idea at all about what this means – which solution? Are we being asked to prepare a statement of profit or loss? A statement of financial position? A statement of cash flows?

“Was $15,000( $90,000-$75,000)”

This I cannot understand – what “Was”?

“this provision as indicated in the book was $90,000 but the estimated was $75,000 and the $15,000 was added to admin exp”

This looks to me like a provision brought forward of $90,000 and that figure is being reduced to the current estimate of $75,000. So we have a partial provision no longer required of $15,000 and this should have been deducted in arriving at the figure for administrative expenses (not added)

“but how do will treat it if the provision was below let says $70,000?”

If we had a provision brought forward from last year of $90,000 and our estimate this year is only $70,000, then we have a partial provision no longer required of $20,000 so …

debit provision account $20,000
credit administrative expenses $20,000

Does that explain it for you?