scania provides a five year warranty on the engines it builds and sells the promise 566874

Scania provides a five year warranty on the engines it builds and sells. The promise to stand ready to provide repair services under the warranty agreement creates an obligation, resulting from the sale of the engines under warranty. The selling price for a Scania engine includes payment for future warranty services even if the invoice does not explicitly show the portion of the total purchase price that is associated with the warranty. At the time of sale, Scania receives a benefit (the cash collected from the customer), but it has not fulfilled its obligations with respect to the warranty period. It will fulfill those obligations over the five year warranty period. Based on past experience, Scania estimates both the proportion of customers who will seek services under the warranty agreement and the expected cost of providing the warranty services. These estimates form the basis for measuring the warranty liability. Scania reports the portion of the liability that it expects to discharge in the next 12 months as a current liability (included in Current Provisions). It reports the portion that relates to warranty obligations it will discharge beyond the next 12 months as a noncurrent liability (included in Other Noncurrent Provisions). Chapter 8 discusses warranty liabilities.