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On 30 June 2019, Ollivanders Ltd., a firm specialising in magical wands, estimated warranty claims...

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Accounting

On 30 June 2019, Ollivanders Ltd., a firm specialising in magical wands, estimated warranty claims for the twelve months just finished at $10,000. But, during the next twelve months it recorded claims for faulty wands of $30,000. The manager assessed the product line that caused the blow out in estimated claims and concluded that the estimate for warranty claims at the end of the year on 30 June 2020 should only be $5,000.

Consider the effect of the decision and suggest reasons why the manager might make such an assessment.

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