A manufacturer gives warranties at the time of sale to the purchaser of its products. Under theterms of the contract for sale the manufacturer undertakes to make good, by repair or replacement, manufacturing defects thatbecome apparent within three years from thedate of sale. On past experience, it is probable(i.e. more probable than not) that there will besome claims under the warranties.
Warranties – IAS 37
Present obligation as a result of past obligating event
– theobligating event is the sale of theproduct with warranty, which givesrise to a legal obligation.
An outflow of resourcesembodying economic benefits insettlement– probable for thewarranties as a whole.