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(iii) On 1 October 2012, Moby received a renewal quote of $400,000 from the company’s property insurer. The directors were surprised at how much it had increased and believed it would be less expensive for the company to ‘self-insure’. Accordingly, they charged $400,000 to administrative expenses and credited the same amount to the insurance provision. During the year, the company incurred $250,000 of expenses relating to previously insured property damage which it has debited to the provision.
-> I have understand everything in this question except this adjustment. Pls kindly explain sir.
“except this adjustment” – which adjustment?
It’s not available to provide for something that doesn’t exist – it’s not allowed to provide for a possible insurance claim!
So Moby should have expensed the cash each time it had to pay out on a claim that would otherwise have been covered by insurance
“except this adjustment” means adjustment # 3 sir;
Why 150 is deducted from administrative expenses in I/S.
still i am not clear sir. Pls explain.Because they had included $400,000 in administrative expenses as the debit entry for the $400,000 provision and that was wrong – there should be no provision.
Instead they should have Dr Administrative Expenses with $250,000 pay outs
So now we need to take the “extra” $150,000 out of Administrative Expenses
OK?
(vi) A share issue was made on 31 December 20X2 of 4 million shares for $1 per share. It was correctly accounted for
Question how is this accounted for?
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