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    Sales Made Evenly (Warranty Liability)

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    Jorufel Tomo Papasin
    The document discusses warranty liability and expense accounting. Warranty expense and liability are recognized in the year of sale based on past repair rates. The liability is derecognized over time, often evenly throughout the warranty period, by deducting estimated costs incurred from the liability balance. An example uses a box method to calculate beginning and ending warranty liability balances for years 2009-2011 to determine amounts to derecognize based on sales and estimated repair rates for each year.

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    Sales Made Evenly (Warranty Liability)

    Uploaded by

    Jorufel Tomo Papasin
    529 views4 pages
    The document discusses warranty liability and expense accounting. Warranty expense and liability are recognized in the year of sale based on past repair rates. The liability is derecognized over time, often evenly throughout the warranty period, by deducting estimated costs incurred from the liability balance. An example uses a box method to calculate beginning and ending warranty liability balances for years 2009-2011 to determine amounts to derecognize based on sales and estimated repair rates for each year.

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    Sales Made Evenly (warranty liability)

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    The document discusses warranty liability and expense accounting. Warranty expense and liability are recognized in the year of sale based on past repair rates. The liability is derecognized over time, often evenly throughout the warranty period, by deducting estimated costs incurred from the liability balance. An example uses a box method to calculate beginning and ending warranty liability balances for years 2009-2011 to determine amounts to derecognize based on sales and estimated repair rates for each year.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    529 views4 pages

    Sales Made Evenly (Warranty Liability)

    Uploaded by

    Jorufel Tomo Papasin
    The document discusses warranty liability and expense accounting. Warranty expense and liability are recognized in the year of sale based on past repair rates. The liability is derecognized over time, often evenly throughout the warranty period, by deducting estimated costs incurred from the liability balance. An example uses a box method to calculate beginning and ending warranty liability balances for years 2009-2011 to determine amounts to derecognize based on sales and estimated repair rates for each year.

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    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://i1.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://i2.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://i2.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://i2.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

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