IFRS 15 Warranty concept STATES the Warranty Classification EITHER as ‘Service Type‘ (a service in addition to the assurance), or ‘Assurance Type‘ (the assurance that the product will function as specified).
IFRS 15 Warranty – Types and Accounting
In determining the ‘CLASSIFICATION’ of a Warranty, an entity considers:
- Whether it is required by law;
- Length of the warranty coverage period; AND
- Nature of the tasks that the vendor promises to perform.
|Service Type||Assurance Type|
|It provides ‘the customer with a service in addition to the assurance that the product will function as specified‘.||It provides ‘the customer with the assurance that the product will function as specified‘.|
|This APPLIES regardless of whether the customer is able to purchase this warranty separately from the entity or not.||Customer CANNOT purchase this warranty separately from the entity.|
|‘Additional Service’ Warranties are accounted for as performance obligation and allocated a portion of transaction price as per IFRS 15.||‘Assurance’ Warranties are accounted for under IAS 37.|
The Bottom Line
IFRS 15 adopted in 2014 and became EFFECTIVE in 2018, superseded IAS’s, IFRIC & SIC’s and presented various ‘Revenue Recognition’ concepts.
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)