One of our clients place got destroyed owing to fire at the plant. Property, equipment and materials were completely destroyed. The client has lodged claim for insurance and received interim settlement. My question is that the client is now showing profit against the claim , set-off against WDV of the asset and not replacement. I am confused is that right way of treatment under IFRS. Could someone help me understand precise treatment
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Ifrs treatment under insurance claim
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Accounting treatment is correct. Insurance claim over and above the net carrying value of the asset can be treated as gain in the income statement. This can occur only when the wdv of those assets were less in the accounting books as compared to the value assessed by the insurer from his risk perspective.
@ Sachin, Thanks for the response. Could you indicate the IFRS reference for this. A doubt still persists, that why it should not be against replacement cost
There is no specific IFRS which talks about accounting of insurance claims. It is merely a common sense to adjust the insurance claim against the WDV of asset in your book and booking differential as either gain or loss. hope this is clear with you.
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