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How should management recognise revenue in respect of a sale of equipment for which a warranty has been given but for which no prior experience of warranty costs is available? Entity A has developed a new engine based on the principles of perpetual motion. Long-term testing of the engine has not been possible because the technology is so new. However, the sale of the first such engine has been agreed, and a one-year warranty for parts and labour has been provided. Management is unable to assess the expected costs of the warranty, but was prepared to provide the warranty in order to obtain the first sale.
