The following disclosures were provided by Siemens AG in its 2018 annual report:
Product-related expenses:
Provisions for estimated costs related to product warranties are recorded in line item Cost of sales at the time the related sale is recognized.
a. The Provision that Siemens reports is an estimated warranty liability. What would constitute “additions” to the provision in 2018? Prepare a journal entry to record this addition.
b. What constitutes “usage” of the provision? Besides the provision, what other accounts are likely to be affected by usage? Prepare a journal entry to record usage of€993 million in 2018.
c. ” Reversals” are corrections of previous estimates of warranty obligations. Why would it be useful to report reversals separately from additions?
d. Siemens reported sales revenue of €83,044 million in 208 and €82,863 in 2017. Calculate the ratio of warranty expense to sales for each year.
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