Percy Limited Is a Manufacturer of Playground Equipment

Percy Limited is a manufacturer of playground equipment. Percy provides its customers with five-year warranties from the date of sale. Past experience shows that there will be some claims under the warranties. The appropriate treatment of this item under AASB 137 Provisions, Contingent Liabilities and Contingent Assets is to:

A) recognise the best estimate of costs as a provision.
B) disclose in the notes, but do not recognise in the financial statements.
C) charge the costs directly to profit or loss in the period in which the economic outflows occur.
D) transfer the expected amount of the warranty from retained earnings to a special reserve account in equity.