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One of our factories went under water due to floods and one machine was fully damaged beyond repair. Our insurance company agreed to replace the machine with a new one. The cost of the machine was $10000 (NBV is 8000 based on 10% depreciation after 02 years). The new machine cost borne by insurance company was $11000.

How should I account for this incident? Can I take 11000 as income? what are the entries to be passed?
in IAS 16 - Property, Plant and Equipment by

1 Answer

0 votes
In such a scenerio, IAS-16 requires that insurance claims has to set off against de recognition of assets and any amount above/lower than book value  of asset is recognized as income/expense. In your case following entries will be passed:

On acceptance of claim by insurer:

Dr. Insurance receivable        11000

Dr. accumulated depreciation 2000

Cr. Asset                                 10000

Cr. Other income.                    3000

On receipt of asset:

Dr. Asset                              11000

Cr. Insurance receivables    11000
by Level 3 Member (7.2k points)