MEASUREMENT OF STANDARD AND EXTENDED WARRANTY AND RECOMMENDATIONS TO ISSUES ENCOUNTERED IN PRACTICE

Warranty is a type of contract where there is a seller commitment to satisfy the same conditions of the product at the selling date for a reasonable period of time. The services performed under this commitment are called standard warranty services. Nowadays, intense competition in some industries pushes firms to offer extended warranty on top of initial warranty period. This development precludes future probable revenues from spare parts and repair services during the life time of the product and concentrates significant portion of life time value of the product to the selling date. Consequently, financial performance of the companies is improved in the short run, while is deteriorated in the long run as if the companies treat extra warranty periods as standard warranty periods and accounts them accordingly. In this study, the separation of standard and extended warranty periods will be discussed and the accounting and measurement principles of those two situations in accordance with International Financial Reporting Standards will be examined. Finally, recommendations for fair presentation of warranty services across the industries will be presented.

Keywords:

Standard warranty Extended warranty, International Financial Reporting Standards,

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