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The Washing Machine Repair Company gives a warranty of no-cost rectification of unsatisfactory repairs....

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Accounting

The Washing Machine Repair Company gives a warranty of no-cost rectification of
unsatisfactory repairs. It has turnover from repair contracts recorded as:
Based on previous experience the manager makes a provision of 10% of turnover each
year for warranty costs. In respect of the work done during Years 1 and 2, repairs under
warranty are carried out as follows:
Required
(a) Show how this information would be recorded in the financial statements of the
Washing Machine Repair Company.
(b) Explain how the financial statements would appear if the company made no
provision for warranty costs but charged them to income statement (profit and loss
account) when incurred.
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