(c) Warranty provision
Matters:
– Materiality
– Uncertainty relating to estimates
– Competence of sales director to make estimates
– Evidence of prior overstatement
– Possible creative accounting/profit smoothing
Evidence:
– Copies of terms of sale
– Notes re basis of forecasting returns levels
– Breakdown of provision calculation
– Schedule listing post year end returns
– Notes re the reason for the unutilised provision
– Notes re known production/quality problems
Maximum marks 6
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Maximum 20
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