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    Prob Chap 4

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    maryani
    Tovo Company owns a car dealership and provides warranties on cars it services. It needs to calculate a provision for warranty claims expected at the end of the year based on its past claims experience. 60% of cars have no defects, 25% have normal defects costing $10,000 each to fix, and 15% have significant defects costing $30,000 each to fix. With 500 cars sold, the expected warranty provision is $1,750,000.

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    Prob Chap 4

    Uploaded by

    maryani
    196 views2 pages
    Tovo Company owns a car dealership and provides warranties on cars it services. It needs to calculate a provision for warranty claims expected at the end of the year based on its past claims experience. 60% of cars have no defects, 25% have normal defects costing $10,000 each to fix, and 15% have significant defects costing $30,000 each to fix. With 500 cars sold, the expected warranty provision is $1,750,000.

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    Prob chap 4

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    Tovo Company owns a car dealership and provides warranties on cars it services. It needs to calculate a provision for warranty claims expected at the end of the year based on its past claims experience. 60% of cars have no defects, 25% have normal defects costing $10,000 each to fix, and 15% have significant defects costing $30,000 each to fix. With 500 cars sold, the expected warranty provision is $1,750,000.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    196 views2 pages

    Prob Chap 4

    Uploaded by

    maryani
    Tovo Company owns a car dealership and provides warranties on cars it services. It needs to calculate a provision for warranty claims expected at the end of the year based on its past claims experience. 60% of cars have no defects, 25% have normal defects costing $10,000 each to fix, and 15% have significant defects costing $30,000 each to fix. With 500 cars sold, the expected warranty provision is $1,750,000.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Problem 4-13 (IFRS)

    Tovo Company owns a car dealership that it uses for servicing cars under warranty.
    In preparing the financial statements, the entity needs to
    pertain the provision for warranty that it would be required to provide at the end of the
    year.
    The entity's experience with warranty claims is:
    60% of all cars sold in a year have zero defect, 25% of all cars sold in a year have
    normal defect, and 15% of all cars sold in a year have significant defect.
    The cost of rectifying a normal defect in a car is P10,000. The cost of rectifying a
    significant defect in a car is P30,000.
    The entity sold 500 cars during the year.

    What is the expected value of the warranty provision for the current year?
    a. 3,500,000 b. 1,750,000 c. 1,400,000 d. 4,000,000

    Problem 4-14 (IFRS)


    Chato Company sells electrical goods covered by a one-year warranty for any defects.
    Of the sales of P70,000,000 for the year, the entity estimated that 3% will have major
    defect, 5% will have minor defect and 92% will have no defect.
    The cost of repairs would be P5,000,000 if all the products sold had major defect and
    P3,000,000 if all had minor defect. What amount should be recognized as a warranty
    provision? a. 8,000,000
    5,600,000
    300,000 d. 190,000
    cos
    ant in a patent

    Problem 4-15 (IFRS)


    During 2020, Odyssey Company
    pany is the defendant in a

    infringement lawsuit.
    ance that the vill incur no
    The entity's lawyers believe there is a 30% chance that court will dismiss the case and
    the entity will incu outflow of economic benefits.
    However, if the court rules in favor of the claimant, the lawyers believe that there is a
    20% chance that the entit, will be required to pay damages of P200,000 and an 800%
    chance that the entity will be required to pay damages of P100,000. Other outcomes are
    unlikely.
    The court is expected to rule in late December 2021. There is no indication that the
    claimant will settle out of court.
    A 7% risk adjustment factor to the probability-weighted expected cash flows is
    considered appropriate to reflect the uncertainties in the cash flow estimates.
    An appropriate discount rate is 5% per year. The present value of 1 at 5% for one
    period is 0.95.
    1. What is the amount of undiscounted cash flows for the
    provision?
    a. 200,000 b. 100,000 C. 150,000 d. 89,880
    2. What is the measurement of the provision for lawsuit
    December 31, 2020?
    a. 95,000 b. 79,800
    53,200 d. 85,386

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