ACCA FR · Chapter 5 · Question 10 of 11
Swift Co sells washing machines with the one-year manufacturer's guarantee required by law. Customers can also buy an optional three-year extended warranty, which is priced separately. How should the extended warranty be treated under IFRS 15?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) As a separate performance obligation, with revenue recognised over the extended warranty period
Explanation
A warranty that the customer can buy separately provides a service beyond assurance that the product works as specified, so it is a service-type warranty. It is a separate performance obligation, and its share of the price is recognised as revenue over the warranty period. The basic statutory guarantee is an assurance-type warranty and is accounted for as a provision under IAS 37.
More Revenue from contracts with customers MCQs
- Q1What is the correct order of the five steps for recognising revenue under IFRS 15?
- Q2Rook Co sells a machine together with two years of servicing for a single price of $1,000. Sold separately, the machine would be priced at…
- Q3Under IFRS 15, when may variable consideration (such as a performance bonus) be included in the transaction price?
- Q4Rookery Co runs an online marketplace. During the year customers bought goods worth $50,000 through the site. Rookery Co never controls…
- Q5Raven Co has a contract that satisfies its performance obligation over time. Progress is measured by costs incurred as a proportion of…