Business, 12.03.2021 15:30 KieraKimball

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, and are established on an individual basis, except for the standard product business. The estimates reflect historic experience of warranty costs, as well as information regarding product failure experienced during construction, installation or testing of products. In the case of new products, expert opinions and industry data are also taken into consideration in estimating product warranty provisions.

Provisions
In Millions of € 2014 2013
Beginning Balance 3,350 3,405
Additions 1,778 1,544
Usage (771) (828)
Reversals (657) (683)
Translation differences and other 23 (88)
Ending Balance 3,721 3,350

The Provision that Siemens reports is an estimated warranty liability. What would constitute "additions" to the provision?

a. 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 €771 million.
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 €71,920 million in 2014 and €73,445 in 2013. Calculate the ratio of warranty expense to sales for each year.

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