Poon Co sells vacuum cleaners with a warranty. Customers are covered for the cost of repairs of any manufacturing defect that becomes apparent within the first year of purchases. The company's past experience and future expectations indicate the following pattern of likely repairs:
| % of goods sold | Defects | Cost of repairs $ |
| 80 | None | 0 |
| 12 | Minor | 77,000 |
| 8 | Major | 138,600 |
The warrantty provision brought forward is $20,100.
What amounts should be recognised in the financial statements of Poon Co in terms of statement of profit or loss and statement of financial position?
| % of goods sold | Defects | Cost of repairs $ | Expected Cost of repairs $ |
| 80 | None | 0 | 0 |
| 12 | Minor | 77,000 | 9,240 |
| 8 | Major | 138,600 | 11,088 |
| Total expected cost of repair | 20,328 |
| Debit | $ | Credit | $ |
| Claimed | 0 | OB provision | 20,100 |
| Provision expense for the year (in income statement) | 228 | ||
| CB provision (in financial position) | 20,328 |