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How do I Book an Insurance Deductible

osaimi othman's Profile

We are in offshore services business. one of our vessel made an accident and damage one platform for our customer. the damage cost was USD 500K and deducted from our invoice. However, case has been reported to Insurance Company and we are not sure that claim will be accepted! How we can book the deduction of $500 should we book it as loss or insurance claim? Any article in GAAP or IFRS mention this case to proof our entry
Thanks 

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

The loss can be recorded in either the cost of services section (damage is a cost doing business if you are in the shipping business) or extra-ordinary losses (although it was an incident which is in the normal course of business.

As for collecting on the insurance, that would be recorded in extraordinary income.

I'm sure you'll get other opinions, equally correct. At the end of the day, you just need to reduce your income. If the insurance comes in, well you'll need to increase your income. Where it ends up on the P/L is more just presentation.

Kevin Roones
Title: Senior Accounting Professional
Company: In-between
(Senior Accounting Professional, In-between) |

I recommend reading this article from McGladrey. http://mcgladrey.com/content/mcgladrey/en_US/what-we-do/services/assurance/financial-reporting-resource-center/accounting-for-disaster-insurance-recoveries.html

The loss due to the damage should be recorded in the period that it occurred, probably as a cost of sale. Income from insurance reimbursement should only be recorded when realization of the claim is deemed probable, probably as other income.

Anonymous
(SVP) |

I agree with the others to book the loss in the period incurred. Regarding the insurance recovery, I wouldn't even record that when you deem it probable since it is a gain, not a loss, contingency. I would record that recovery (other income) when the insurance company issues its decision.

Also, in light of the decision to do away with the"extraordinary" classification, I would stick to your normal fsli's.

Krishna Khaitan
Title: Chief Financial Officer
Company: AV Group
(Chief Financial Officer, AV Group) |

Hi
We had a fire in our plant which resulted in insurance claim for Property damage and Business interruption. For simplicity, Let me put some numbers;
Damage to property, corrected by spending on repairs - $500K
Business Interruption claim - $400K
Total insurance claim $900K
Insurance claim received $150K (deductible $750K)

We have accounted for repairs of $500K as a part of repair cost. How I account for receipt of insurance claim of $150K.
Krishna

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