ACCA FA · Chapter 8 · Question 5 of 10
A provision for warranty costs had a balance of $24,000 at the start of the year. At the year end the required provision is $19,500. What is the effect on profit for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Profit increases by $4,500
Explanation
Only the movement in the provision passes through profit or loss. The provision decreases by $24,000 - $19,500 = $4,500, so the provision is debited and profit or loss credited with $4,500, increasing profit.
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