ACCA Applied Knowledge · Financial Accounting · Provisions and contingencies
Corvus Co had a warranty provision of $42,000 at the start of the year. At the year end the required provision is $50,000. Which amount is charged to profit or loss for the year in respect of the warranty provision adjustment?
The charge is $8,000, being the increase in the provision from $42,000 to $50,000. Only the movement in the provision is taken to profit or loss, because the opening balance was already charged in earlier periods.
- A$92,000
- B$50,000
- C$8,000Correct
- D$42,000
Explanation
Only the movement in the provision is charged: $50,000 required less $42,000 brought forward gives an increase of $8,000. Charging the full $50,000 would ignore the opening balance already recognised in earlier periods.
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