N.ROC is a manufacturer and seller of wall mounted air-conditioning units. The purchase price of the air-conditioning unit includes installation of the air-conditioning unit, two years warranty and annual service for three years from the date of purchase. The warranty covers repairs and breakdown whereas the service is for preventative maintenance. The air-conditioning unit cannot be purchased outright on its own.
History indicates that one repair will be required to be performed on each unit sold over the two year warranty period.
N.ROC provides maintenance services to customers with N.ROC air-conditioning that do not take this option up-front or whose units are more than three years old. It does not install air-conditioning units for non-N.ROC air-conditioning units. N.ROC can determine the costs of providing each service offered in its sales package.
There are no refunds on the air-conditioning units unless they are faulty within three months of installation.
N.ROC’s competitors sell air-conditioners without any installation, service or extended warranties attached to the product. The standard warranty period on sales of all such air-conditioning units is one year.
Question
Should this arrangement be accounted for under IAS 18 Revenue, paragraph 13 or 19? Explain your answer. You survey all related standards and interpretations (please see the assignment instructions above).
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