IFRS 15 has specific guidance for the treatment of warranties. It distinguishes between two types of warranties:

1. Assurance-Type Warranties: These are warranties that the product will function as the parties to the contract agreed, i.e., it will function as expected and do what it is supposed to do. For these types of warranties, the entity does not account for them as separate performance obligations. Instead, the entity recognizes a warranty liability and expense (usually based on historical data or other reasonable basis for estimation) when the products are sold, indicating an obligation to repair or replace faulty products.
2. Service-Type Warranties: These are warranties that provide an additional service beyond the assurance that the product complies with agreed-upon specifications. For example, if a warranty provides the customer with a service of repairs or maintenance over a certain period that goes beyond the standard assurance of the product's specified functionality, it is considered a service-type warranty. Under IFRS 15, these types of warranties are considered separate performance obligations. The entity allocates a portion of the transaction price to the warranty based on its standalone selling price and recognizes that revenue over the period the warranty service is provided.

The entity must carefully evaluate the terms of the contract and its normal business practices to determine whether the warranty provides a customer with a service beyond the assurance that the product complies with agreed-upon specifications.

This treatment of warranties under IFRS 15 can differ significantly from previous standards, which often did not require entities to differentiate between different types of warranties in this way. Instead, under previous standards, warranties were typically treated as a cost accrual issue, rather than a separate performance obligation that affected revenue recognition.