Question

Explain the accounting for a service-type warranty.

Short answer

Service type warranties are additional services provided apart from assurance and separately customer pays for the additional service. They are accounted under IFRS 15.

Step-by-step solution

Definition of Service-Type Warranty

Service type warranty is a warranty that is gives something extra apart from assurance like extra services.

Accounting for service-type warranty

Service type warranties are those warranties that provide something additional, apart from mere assurance. They give a separate performance obligation because they provide additional service to the customer as they pay separately for such services and they are accounted under IFRS 15.

For example, Product A has a warranty for 1year (assurance warranty) that it will function well till 1year but an additional warranty of providing extra service on such product to the customer is a service type of warranty.