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Legal Claim with virtually certain Insurance

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › Legal Claim with virtually certain Insurance

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Kim Smith.
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  • September 3, 2021 at 4:02 pm #634155
    parthbhanushali
    Member
    • Topics: 34
    • Replies: 20
    • ☆☆

    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?

    September 3, 2021 at 5:43 pm #634191
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6794
    • ☆☆☆☆☆

    If 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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