Goods exchange & provision

Question

Our company runs a retail garment shop. We allow customers return the garments they bought within 07 days in an unused condition with price tags in case they change their mind or dislike the garment. In such cases customers can  use the amount concerned to buy something else. No money is refunded and the items returned are again kept in showrooms for sale. Does this situation requires a provision to be recognized as per IAS 37 provisions?

Answer 1

If no cash refunds are made I don't think any provision is necessary. Just look at the definition:
An entity must recognise a provision if, and only if: [IAS 37.14]
-a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event),
-payment is probable ('more likely than not'), and
-the amount can be estimated reliably.