Home > Uncategorized, Warranty Liability (part 1) > Warranty Liability (part 1)

Warranty Liability (part 1)

CPA-WANNABE wrote on Fri, 28 August 2009 18:42
MGA KUYA pa explain naman po yung concept ng Warranty actual repairs occured EVENLY throught the year.. Eto yung may 1/2 x yearly percentage…

THANKS!!!! Smile

Estimated Warranty

1st yr- 3 %
2nd yr- 5%
3rd yr- 6%

Sales
2009- 100000
2010- 200000
2011- 150000

How much is Estimated Liab, and Expense for 2009? 2010? 2011?
Assume actual repairs occured evenly throughout the year.

Warranty Liability

Ang warranty liability ay isang klase ng liability na kung saan ang warrantor (o yung nagbigay ng warranty) ay nagga-guaranty ng serbisyo na ayusin ang anumang sira ng produktong naibenta nila in the future, giving you “probable and measurable costs to be incurred for the rendering of a future service”. Kaso, papano nirerecognize yung “Warranty Expense” at paano dine-derecognize yung Liability.

Ang Warranty Expense/Warranty Liability ay nirerecognize na when the cost becomes “probable and measureable” which is usually during the year of Sale. So sa year na nagbenta na tayo, magkakaroon na tayo ng idea kung magkano ang magiging cost natin based on past experience (thus, becomes measureable) at based din sa ating past experience, pag nagbebenta tayo sa customers ng products usually may nagpapa-repair ng sira (thus, becomes probable). So recognize the whole Expense/Liability on the year of Sale.

Pag magdederecognize ka ng Liability, eto ang entry:
(dr) Warranty Liability
(cr) Cash (for costs incurred)

Dalawa ang pwedeng paraan para i-derecognize ang Warranty Liability, pwedeng Discrete (madali lang to, kapag actually na nabigyan ng service yung customer at gumastos ka dun ka mag-eentry, usually sa mga Low-Volume and High Dollar Amount na mga warranties ito kaya madali imonitor) at mayroon ding “Evenly Throughout the Period” (o naka-spread out yung pagrecognize ng pagprovide ng service, usually sa mga High Volume, Low Dollar Amounts ginagamit to – kasi napakahirap naman kung iisa-isahing imomonitor mo yung mga warranties kaya we’ll use estimates in derecognizing the Warranty Liability). Minsan, upon using this method, may actual dollar amounts ka parin na record ng cash outlay for the warranties kaya kelangan mo ng adjustment at the end of the period (ung problem na given walang nakaspecify na actual outlay ng cash so i-aassume natin na yung outlay ng cash ay “evenly throughout the period din”. Mamaya bibigay ako ng example using the same problem na may “what if there’s a specific yearly cash outlay for the warranty”.)

Let’s focus on the “Evenly Throughout the Period” method kasi ito usually ang ginagamit sa pag-estimate ng liability. Ok, nung nag-aaral ako, nasa isip ko rin bakit nga ba laging ½ or 50% lang ng percentage for the year ang dinederecognize na liability, bakit of all fractions or rates, bakit 50%. Base sa masusuring pag-aaral (wehhh), the reason behid using ½ or 50% is because we’re getting the “AVERAGE”. Kasi nga evenly throughout the period eh kaya spread out or in-AVERAGE sya. Diba ganon ang ginagawa natin pag kumukuha tayo ng average ng grade, iniispread-out natin yung grade evenly throughout our subjects? Ganon din sa warranties. Ina-average natin yung derecognition ng Liability. Oki? Clear po ba? Pag may tanong dito, please post a follow-up question.

Ok, let’s proceed with the problem. Ngayon, may techniqe sa pag atake sa mga warranty liability probs lalo pag evenly throughout ang hinahanap. Ito ay ang BOX METHOD (natutunan ko to kay Ma’am Patricia Empleo). Gagamit ka ng box para ma-estimate mo yung balance ng Warranty Liability account.

https://i0.wp.com/i438.photobucket.com/albums/qq107/joseph0487/p1.jpg

Using this box, cocompute natin ang ending balance ng liability at icocompare natin sa beginning balance para malaman natin kung magkano idederecognize natin.

Ok, i-state ulit natin yung problem

Estimated Warranty

1st yr- 3 %
2nd yr- 5%
3rd yr- 6%

Sales
2009- 100000
2010- 200000
2011- 150000

How much is Estimated Liab, and Expense for 2009? 2010? 2011?
Assume actual repairs occured evenly throughout the year

Ok, Start muna natin for 2009:
Magkano yung Warranty Expense. Since during 2009 probable at measureable na ang Warranty Expense na maiincur mo for the next couple of years, you’ll recognize the entire expense thus:
3% for year 1 + 5% for year2 + 6% for year3 = 14% total Expense/Liability

for 2009

Warranty Liability/Expense For 2009 Sales
100,000 * 14% = P 14,000

https://i0.wp.com/i438.photobucket.com/albums/qq107/joseph0487/2009we.jpg

So, malinaw na, may Warranty Liability ka na at Expense. Ngayon, estimate mo naman kung magkano sa P 14,000 ang nabigyan mo na ng service at magkano pa ang Liability mo at the end of the period. Pano? Edi Estimate mo yung Ending Balance mo ng Warranty Liability mo:

Yung shaded part, yun yung future services yet to be rendered, so at the END OF 2009, yung shaded part yung utang mo pa sa customers:

https://i0.wp.com/i438.photobucket.com/albums/qq107/joseph0487/2009box.jpg

For 2009 Sales
100,000 * 3% * ½ = 1,500
100,000 * 5% = 5,000
100,000 * 6% = 6,000
ENDING BALANCE as of 2009 = 1500 + 5000 + 6000 = 12,500

https://i0.wp.com/i438.photobucket.com/albums/qq107/joseph0487/2009ta.jpg

So, may P1,500 kang derecognition ng Warranty Liability for costs incurred for the rendering of service to the warranty customers. Equal din to sa:
100,000 * 3% * ½ = P1,500

https://i0.wp.com/i438.photobucket.com/albums/qq107/joseph0487/2009aje.jpg

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