Answer
IFRS 15 recognizes two types of warranties;
1. Assurance type - This is more of a promise that the product shall perform as specified. This type of warranty doe not have a separate performance obligation. The seller should recognize revenue on date of delivery and make a provision for warranty repairs.
2. Service type- This type of warranty, not only provides a promise that the product shall perform as specified, but provides a separate performance obligation. This basically means that the customer has an option to acquire the warranty as a standalone, and the seller has to account for the two performance obligations separately.
Work Step by Step
Most warranties are required by law and if they match the period required, then they should be classified under note 1 above. However, if they extend outside the legally required period, then they fall under option 2 below.
