Insurance

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This query is : Resolved

mayank kothari (Querist)

19 February 2013 Suppose private ltd co. has taken insurance policy of 10 years against damage caused to plant and machinery by fire and paying premium annually.....so what is the tratment of policy in financial statements on the date of policy taken and subsequent premiums paid.

Is it to be capitalised and if yes then how?

plz answer as per revised schedule VI

Nikhil Kaushik

Nikhil Kaushik (Expert)

19 February 2013 the premium payment is expense out every year in the profit and Loss Account. I don't think there is any change in this regard in the revised schedule VI.

It is further required that the insurance cost is shown as a separate line item or is disclosed in schedules to P&L Account.

mayank kothari

mayank kothari (Querist)

19 February 2013 thanx nikhil but can i show insurance as asset or not like in the case of joint life insurance where we can treat insurance as either expense or asset........

Nikhil Kaushik

Nikhil Kaushik (Expert)

19 February 2013 Dear Mayank,

I fail to see how you show this interest policy as an asset.

Lets Say you have this policy of Rs 1 Cr insurance cover with an annual premium of Rs 2 Lakhs.

So what you propose to do with this?

Book asset worth 1 Cr or capitalize the annual premium?

the benefit of annual premium is not enduring in future, so that can't be capitalized. You may receive compensation against any damage in the future on account of the premium paid during that particular year.

Idea to book Rs 1 Cr as an asset is something which I can't imagine in any flight of imagination I may have.

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