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The entity‖s financial statements for the year ended 31 March 20X1 have not yet been finalized.
        Three separate categories of goods require separate consideration:
        Category 1—defective goods sold on or before 31 March 20X1

        Category 2—defective goods held on 31 March 20X1
        Category 3—defective goods manufactured in 20X1-20X2
        State the accounting treatment of the above categories in accordance with relevant Ind AS.
        SOLUTION

        Category 1—defective goods sold on or before 31 March 20X1
        If a customer has the option to purchase a warranty separately, the warranty is a distinct service because the
        entity promises to provide the service to the customer in addition to the product that has the functionality

        described in the contract. In that case, the entity shall account for the promised warranty as a performance
        obligation and allocate a portion of the transaction price to that performance obligation.
        If a customer does not have the option to purchase a warranty separately, an entity shall account for the
        warranty  in  accordance  with  Ind  AS  37,  Provisions,  Contingent  Liabilities  and  Contingent  Assets,  unless  it
        provides the customer with a service in addition to the assurance that the product complies with agreed-upon
        specifications. If that is the case, then, the promised service is a performance obligation. Entity shall allocate

        the transaction price to the product and the service.
        If  an  entity  promises  both  an  assurance-type  warranty  and  a  service-type  warranty  but  cannot  reasonably
        account  for  them  separately,  the  entity  shall  account  for  both  of  the  warranties  together  as  a  single
        performance obligation.

        A law that requires an entity to pay compensation if its products cause harm or damage does not give rise to
        a performance obligation. The entity shall account for such obligations in accordance with Ind AS 37

        Category 2—defective goods held on 31 March 20X1

        At 31 March 20X1, the entity did not have a present obligation to make good the unsold defective goods
        that  it  held  in  inventories.  Accordingly,  at  31 March  20X1  the  entity  should  not  recognise  a  provision  in

        respect of the defective inventories.
        For this category, the detection of the manufacturing defect in April 20X1 is an adjusting event after the

        end of the reporting period as per Ind AS 10,  Events after the End of the Reporting Period. It provides
        evidence of a manufacturing defect in inventories held at 31 March 20X1.

        Category 3—defective goods manufactured in 20X1-20X2

        On 31 March 20X1 the entity did not have a present obligation to make good, any defective goods that it
        might manufacture in the future. Accordingly, at 31 March 20X1 the entity should not recognise a provision in
        respect of the defective goods manufactured in 20X1-20X2.
        For this category, the detection of the manufacturing defect in April 20X1 is a non- adjusting event after the
        end of the reporting period as per Ind AS 10, Events After the End of the Reporting Period.






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