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Hello Kim,
Effect of Hurricane
IAS 16 Property, Plant and Equipment requires the impairment and derecognition of PPE and any subsequent compensation claims to be treated as separate economic events and accounted for separately in the period they occur.As such, this may mean that the Group has to account for the impairment loss in the current year but cannot recognise the compensation claim until the next financial period as this can only be recognised when the COMPENSATION BECOMES RECEIVABLE.
My question is “what does it mean by when the COMPENSATION BECOMES RECEIVABLE?”
When to determine whether the reimbursement from third party should be disclosed as contingent assets or not, IAS 37 mentions if the realisation of income is VIRTUALLY CERTAIN then we should recognize it as an asset.
I am just wondering whether the compensation becomes receiveable and realisation of income is virtuall certain indicating the same thing. If not, what is the difference between IAS 16 and IAS 37 in relation to the accounting treatment for REIMBURSEMENT FROM THIRD PARTY.
Thank you.
Regards,
MarthewThey amount to the same thing in terms of when you should recognise a receivable in the financial statements. For example, client submits an insurance claim to the insurer – even though the claim appears to qualify for reimbursement it would be imprudent to recognise a receivable at this stage. The insurer’s acknowledgement of the claim (rather than rejection) improves the likelihood of a receivable but there may still be some process (e.g. “loss adjustment”) for agreeing the amount. When the insurer notifies the claimant of the settlement they can expect and when they can expect it – it will be receivable/virtually certain. Basically, it can fall short of being actually received for it to be recognised, but there must be reasonable expectation that it will be received.
The same question, there is wrongly classified licensing agreement and amortisation calculated annually is $526316 and further the answer goes on to saying that if 6 months amortisation is recognised in this financial year then adjusyed profit will $14.7m. why are they accounting only 6 months profit when the year end 31 Dec2017.
Also after that issue when they calculate materiality they take the adjusted figure. Is that necessary . Would we be penalized if we take the figure mentioned in the question
As the answer says – the restaurants were only opened 1/2 way through the year so it is not unreasonable to assume that amortisation would start from then.
If you assumed amortisation for 10 years from the beginning of the financial year you would still get substantially all the available marks – the point is that the $5m should not have been expensed but capitalised but there will be an expense element (amortisation).
Okay. But the materiality calculation why has it been done on adjusted profit figure ? It’s an error we are finding out. Is it necessary to do the calculation on adjusted figure
I don’t think you would be penalised in the exam for making the calculation on the draft PBT of $10m. In practice this would be adjusted (as the audit progresses) and given that $5m incorrect write-off is signicant, I would have probably assessed materiality of the amortisation against $15m.
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