Legal claim payment order by court = $1.2m (not paid at year end)
Insurance co. accepted that the entire claim will be reimbursed, hence it is a virtually certain asset.
The answer to Sept 18 que, Coram & Co. mentions following treatment is correct:-
1) Asset (receivable from Insurance Co.) Dr. = 1.2m
Provision Cr = 1.2m
2) Answer states that no impact of this will be reflected in P/L in this year.
My question = Why will there be no impact on P/L. Don't we recognise any losses/certain cash outflow immediately?
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Legal Claim with virtually certain Insurance
5y ago#1If there is no net liability, there is no loss. However, to my mind the "full" answer is:
Dr Expense (whatever is appropriate to the nature of the payout)
Cr Liability (due to the Clark Co)
Dr Insurance receivable
Cr Expense (same as debit above)
So no SoPL effect.
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