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IAS 37Workpapers (Step 4 of 5)

Workpaper assignment

Step 4 of 5
Mission · workpaperWorkpaper · IAS 37L1 · Fundamental

Documents

After-sales department memo on warranties

Memo

After-sales department memo on warranties

After-sales department memo, January 20X2. The water heaters sold in 20X1 are covered by a 24-month contractual warranty: Calvenne repairs or replaces any defective appliance free of charge. Based on the history of the last five years, for all appliances sold in 20X1 still under warranty: in 70% of cases, no repair will be needed; in 25% of cases, minor defects will lead to a total cost of 150,000; in 5% of cases, major defects will lead to a total cost of 1,100,000. The sales manager considers that no provision is needed, since each appliance is unlikely to fail.

Recognition analysis of provisions and contingencies: Former sales agent's claim

Warranties, shared pollution, lawsuits and a claim: provision, contingent liability or contingent asset

5 documents7 sections to document
0 / 4 sections completed
Guided mode

Section 1 of 7

Objective

In progress
Section brief
What to document
The engagement, its scope and the working mode chosen.
Why
A workpaper answers one precise question: framing it avoids off-topic work.
How
Read the objective and the assignment, then choose the mode (guided, semi-guided, professional).
Expected result
You know which question the workpaper must settle, and for which reporting date.
Your role
Preparer of the IAS 37 workpaper
Level
Foundation
Estimated time
≈ 35 min
Progress
0 / 3 steps done (review excluded)

Context

Calvenne Thermique SAS (a fictitious entity) manufactures and sells electric water heaters for households and hotels. Together with the chief financial officer, you are reviewing the liabilities for the year ended 31 December 20X1; the financial statements will be authorised on 25 February 20X2. Five documents describe the situations to be examined.

Assignment

Recognition of provisions and contingencies workpaper (five situations).

Purpose of the workpaper

For each situation, check the scope, whether a present obligation arises from a past event, the probability of the outflow of resources and whether a reliable estimate can be made; classify the situation (provision, contingent liability disclosed or not, contingent asset, asset recognised), record the entries and pass the items of the note.

Questions of the file covered by this workpaper

  • For each situation, is there a liability at the reporting date? Distinguish a provision, an accrual and the absence of an obligation.
  • Calculate the warranty provision at 31 December 20X1.
  • Calculate the provisioned share and the contingent liability share of the clean-up obligation.
  • Classify the Ruvalis lawsuit, the former agent's claim and the claim against Faldaro.
  • Record the entries at 31 December 20X1.

Documents in the file

Open the documents to pick out the relevant information.

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View the workpaper template