Insurance compensation received what is the treatment ???

A/c entries 1590 views 8 replies

jignesh l bhatia

78 Points Joined June 2009

Hey Can anyone help me on this Matter???

My client is having a plant in the hilly areas of Sikkim.Due to the earfth quake in the Sep 11 the plant & its machineries were affected.For this the client has incurred additional repairs & maintainance expenses.

Also my client is possessing an insurance cover to meet that repair & maintainence cost.Now @ the time of incurring expense it was booked inot the P&L.

Now the query is whether the compensation recd from insurance companeies should be shown seprately on "Cr" of p&: or whether it should be shown as deduction from the specific expense incurred for repairing & maintainence of the P&L A/c.

Please reply

Thanks in advanc

Replies (8)

Guest

Disclosed in the cr. Of p/l

jignesh l bhatia

78 Points Joined June 2009

@ Celiena

There is no Accounting Standard which is prescribing anything regarding the recognition of Insurance claims on the CR side of ur P&L A/c.

So i think crediting in the P&L a/c is not the correct treatment.

Guest

Sir if there is any abnormal loss then we dr. To p/l a/c so, any income recvd agasint abnormal loss should be credited to p/l a/c........maine toh yehi logic lagaya...not so sure

Guest

Insurance compensation indirect incum bhi h....

Neeraj Singh

Executive Account

94 Points Joined October 2010

ya agree with Celiena goel .. it shoud credit in p/l a/c...

CA. Uttam Agarwal

Assistant Manager

21 Points Joined May 2010

Dear All,

If we show expenses on debit side of P&L and compenastion recd on Cr side, then it will be difficullt for the reader of the accounts to understand and correlate these two offsetting items. So, in my view, compensation should be shown as a deduction from the total expense incurred as a result of earthquake and only the net amount should appear in the outer column, in order for simple and better presentation.

Other views are welcome.

Regards, Uttam

Kolluru Krishna Murty

Partner

315 Points Joined December 2011

The following would be a better representation:

1.Identify the total expenditure on repair etc, against the claim and show it as receivable amount by credit to concerned Expenditures and debit to receivable a/c.

2 Creit the amount received to the receivable a/c.

3.Balance left in the Receivable a/c is loss(short claim received) or profit (higher claim received) depending on the amount received.

Hope the position is clear.

kkm

Z

Tax Consultation (US and India)

2970 Points Joined September 2011

As per AS-5

Extraordinary items are income or expenses that arise from events or

transactions that are clearly distinct from the ordinary activities of the

enterprise and, therefore, are not expected to recur frequently or regularly

Para 8 of AS-5 States

Extraordinary items should be disclosed in the statement of profit

and loss as a part of net profit or loss for the period. The nature and the

amount of each extraordinary item should be separately disclosed in the

statement of profit and loss in a manner that its impact on current profit

or loss can be perceived.

Both the transactions that is loss from earthquake and compensation are extra ordinary in nature therefore seperate disclosure should be preffered

Having regards to the words "in a manner that its impact on current profit

or loss can be perceived"

Even the second option (net of expense appears correct 'cause correct picture of P&L can be perceived .But to be on safer side 1st option is better (i.e seperately disclosing EACH item)

btw

Para 11 includes eathquake as one of the event or transaction which may lead to extraordinary item