Purcell Limited is a manufacturer of swimming pools and provides its customers with warranties at the time of sale. The warranty applies for three years 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:

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Under AASB 137, a provision should be recognised when there is a present obligation as a result of past events that will probably result in an outflow of resources and when a reliable estimate can be made of the amount of the obligation. Since Purcell Limited provides warranties to its customers and past experience shows that there will be some claims, a provision should be recognised for the estimated cost of fulfilling the warranty obligations. Therefore, the best choice is to recognise the best estimate of costs as a provision.

Purcell Limited Is a Manufacturer of Swimming Pools and Provides