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Prepare necessary journal entries to record warranty claims

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Reference no: EM133118616

Question - Serba Mantul Bhd (SMB) produces coffee makers machine named Mantop Espresso Machine (MEM). The Covid-19 pandemic has changed consumer behavior, and demand for the product has increased. SMB reported an increase in sales for the two years (2020-2021).

The company provides a two-year warranty for all sales of MEM. The following are the details of sales and warranty claims:

1. Total sales of MEM for year 2020 and 2021 were RM1,200,000 and RM1,900,000, respectively.

2. Total warranty claims in 2021 for MEM that were sold in the previous year was RM120,000.

3. Total warranty claims for the year 2021 was RM500,000.

4. It is estimated that the maximum amount of warranty claims for the second year would only be 15% of the current year sales. The accounting year of the company ends on 31 December.

Required -

(a) Prepare necessary journal entries to record the warranty claims and provisions for the year 2021.

(b) Provisions are certain amount allocated toward probable, but not certain, future obligations. Explain when the provisions should be recognized.

Reference no: EM133118616

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