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    MongoTX's Avatar
    MongoTX Posts: 1, Reputation: 1
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    #1

    Jul 10, 2014, 11:15 AM
    Warranty Expense with extended payments
    Company F operates in USA, state of IL.
    1. Company F has been charged $180,000 for warranty charges related to products sold in prior years by company H (also USA company).
    2. Company H allows extended monthly payments of $7,500 over 2 years.
    3. Assume charge occurs in month 2 of Company F fiscal year.

    Question: Can Company F recognize Warranty expense on monthly basis only ?
    Ex: Warranty Expense $7,500
    A/P Company H $7,500
    Fidget1's Avatar
    Fidget1 Posts: 105, Reputation: 4
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    #2

    Jul 12, 2014, 09:57 AM
    The expense has already happened so it must be expensed in full in the accounts of F. If H is allowing a period of repayment then in essence, the substance of the transaction is a loan from H to F.

    Ideally, an organisation would make a provision for this based on the likelihood of the warranty being called in. But if it hasn't created a provision, then it should be expensed to the P&l in the current financial year
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