Reference no: EM132584030

Question (a) Alfa sells goods with a warranty under which customers are covered for the cost of repairing any manufacturing defects discovered within the first 12 months after purchase. If minor defects were detected in all products sold, repair cost of RM100,000 would result. If major defects were detected in all products sold, repair cost of RM400,000 would result. Alfa's past experience and future expectations indicate that, for the coming year, of the goods sold:

75% will have no defects

20% will have minor defects and

5% will have major defects

Required: Calculate the amount to be provided in the financial statements in respect of the warranty claims.

Question (b) Beta has an obligation to restore the seabed for the damages it has caused in the place. It has RM 1 million cash to pay on 31 December 2014 relating to this liability. Beta's management consider that 15% is an appropriate discount rate. The time value of money is considered to be material.

Required: Calculate the amount to be provided at 31 December 2012 for the costs of restoring the seabed