Elebris Ltd sells electrical goods. The goods come with a manufacture’s 1-year warranty. Elebris also offers customers the option of separately purchasing an extended warranty to cover year 2 to 5.
The sales price of the extended warranty sold separately is 100 and Elebris typically receives valid of repairing or replacing the goods under the warranty is 600 per valid claim.
How should management recognize revenue from the sale of the extended warranty and the associated costs?
Please explain with your answer
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