Y Co sells goods with a one year warranty and had a provision for warranty of $33,500 at 31 December 2014. During the year ended 31 December 2015, $27,000 in claims were paid to customers. On 31 December 2015, Y Co estimated that the following claimes will be paid in the following year:
| Scenario | Probability | Anticipated cost $ |
| Worst case | 5% | 54,000 |
| Best case | 20% | 27,000 |
| Most likely | 75% | 40,500 |
What amount should Y Co record in the statement of profit or loss for the year ended 31 December 2015 in respect of the provision?
Suggested Solutions
| Scenario | Probability | Anticipated cost $ | Expected cost $ |
| Worst case | 5% | 54,000 | 2,700 |
| Best case | 20% | 27,000 | 5,400 |
| Most likely | 75% | 40,500 | 30,375 |
| New provision | 38,475 |
| Debit | $ | Credit | $ |
| Claimed | 27,000 | OB provision | 33,500 |
| Provision expense for the year | 31,975 | ||
| CB provision | 38,475 |