Lonsdale Ltd sells mobile phones and provides a one-year warranty.Lonsdale is able to recognise revenue at point-of-sale in accordance with IASB (2011)because:
A) this is industry practice.
B) repairs are unlikely within a year of sale.
C) cost of repairs can be estimated based on experience and this is recognised as warranty expense in the year of sale.
D) cost of repairs can be estimated based on experience and this is recognised as sales returns.

Question

Quizplus · Accepted Answer

Under IASB (2011) guidelines, revenue can be recognized at the point of sale if the future costs, such as warranty repairs, can be reliably estimated. This allows the company to match the expenses related to the warranty (such as repair costs) with the revenue recognized from the sale of the product, ensuring accurate financial reporting. Option C correctly reflects this principle by stating that the cost of repairs can be estimated based on experience and is recognized as warranty expense in the year of sale.

Lonsdale Ltd Sells Mobile Phones and Provides a One-Year Warranty