ABC Inc. provided warranty for all products sold during 2021. The entity sold 200,000 units during the current year. It is estimated that 75% of the products will have no defects. 15% of the products sold will have a minor defect and 10% of the products will have a major defect. The cost of a minor defect is P100 per unit while the cost of major defect is P300. The entity is also involved in a tax dispute with BIR in 2021. Based on legal advice, there is a 40% chance that the entity will lose the case and the entity have to pay P 500,000. What total amount of provisions should be recorded on December 31, 2021?
ABC Inc. provided warranty for all products sold during 2021. The entity sold 200,000 units during the current year. It is estimated that 75% of the products will have no defects. 15% of the products sold will have a minor defect and 10% of the products will have a major defect. The cost of a minor defect is P100 per unit while the cost of major defect is P300. The entity is also involved in a tax dispute with BIR in 2021. Based on legal advice, there is a 40% chance that the entity will lose the case and the entity have to pay P 500,000. What total amount of provisions should be recorded on December 31, 2021?
Chapter11: The Corporate Income Tax
Section: Chapter Questions
Problem 11MCQ
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Question
ABC Inc. provided warranty for all products sold during 2021. The entity sold
200,000 units during the current year. It is estimated that 75% of the products will have
no defects. 15% of the products sold will have a minor defect and 10% of the products
will have a major defect. The cost of a minor defect is P100 per unit while the cost of
major defect is P300. The entity is also involved in a tax dispute with BIR in 2021. Based
on legal advice, there is a 40% chance that the entity will lose the case and the entity
have to pay P 500,000.
What total amount of provisions should be recorded on December 31, 2021?
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