1. What is a premium?
- Premium are articles of value such as toys, dishes, silverware, and other goods given to customers as
result of past sales or sales promotion activities. In order to stimulate the sale of their products, entities
offer premiums to customers in return for product labels, box tops, wrappers and coupons.
2. Explain What is warranty?
- In general, a warranty is a promise, assurance, or statement made by the warrantor regarding the
existence or accuracy of specific facts or the condition, quality, quantity, or nature of a good or property.
There are express and implied warranties, both of which are legally binding commitments. Home
appliances like television sets, stereo sets, ratio sets, refrigerators, and the like are often sold under
guarantee or warranty to provide free repair service or replacement during a specified period if the
products are defective.
3, Explain What is gift certificate?
- Gift certificate means a written promise given in exchange for full or discounted payment, or without
any money or other thing of value being given in exchange, to provide merchandise in a specified amount
or of equal value to the bearer of the certificate. It is a certificate entitling the recipient to receive goods or
services of a specified value from the issuer. Gift certificate is redeemable.
3. Explain a coupon offer for free product
- A coupon is a ticket or document that can be exchanged for a financial discount or rebate when
purchasing a product. Coupons offer instantly redeemable savings on certain products. That means that
consumers get an instant reduction on the price at the point of purchase. Coupon offered by some
department stores for free product is a good marketing strategy to gain the loyalty of the customer.
4. Explain breakage and breakage revenue in connection with gift certificate
- Breakage in connection with gift certificate is a term to describe when sellers gained a revenue when
gift certificate did not claimed or unused by the customer. Breakage revenue in connection with gift
certificate is a liability for a company because they already paid for it.
5. What are the conditions for the recognition of a warranty provisions?
- PAS 37, paragraph 14, provides that a provision shall be recognized as a liability in the financial
statements under the following conditions:-=
a. The entity has a present obligation, legal or constructive, as a result of a past event.
b. It is probable that an outflow of resources embodying economic benefits would be required to settle the
obligation.
c. the amount of the obligation can be measured reliably.
6. Differentiate the accrual approach and expense as incurred approach of accounting for warranty cost.
- The accrual approach has the soundest theoretical support because it properly matches cost with
revenue. The expense as incurred approach is the approach of expensing warranty cost only when actually
incurred. This approach is justified on the basis of expediency when warranty cost is not very substantial
or when the warranty period is relatively short.
7. Explain the sale of an extended warranty
- A warranty is sometimes sold separately from the product sold. When products are sold, the customers
are entitled to the usual manufacturer’s warranty during a certain period. However, the seller may offer an
“extended warranty” on the product sold but with additional cost. The amount received in sale of an
extended warranty is recognized initially as deferred revenue.
8. Explain a coupon offer for rebate for refund.
-A rebate is an amount paid, by way of reduction, return, or refund on what has already been paid or
contributed. It one of the sales incentives promotion marketers use to supplement product sales. Rebates
are offered by either the retailer or the manufacturer of the chosen product. The coupon offer for rebate
for refund can be given to customers but the customers requires to act after purchase to receive the
incentive or discount. The coupon offer for rebate or refund is the cash discount coupon or cash rebate.
9. Explain What is customer loyalty program?
- The customer loyalty program is generally designed to reward customers for past purchases and to
provide them with incentives to make further purchases. Many entities use a customer loyalty program to
build brand loyalty, retain valuable customers and of course, increase sales volume.
10. What is the stand-alone selling price of the coupon for free product?
The stand-alone selling price is the price at which an entity would sell a promised good or services
separately to a customer. The fair value of the consideration received with respect to the initial sale shall
be allocated between the award credits and the sale based on relative stand-alone selling price. The stand-
alone selling price of the coupon for free products is allocated between the award credits.
