Compensation from third parties

Learning objectives

• Determine when insurance compensation is recognised.L2, L3
• Record separately the loss on the asset, the compensation receivable and the replacement asset.L3

Normative references

• IAS 16 §65Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is recognised in profit or loss when the compensation becomes receivable.
• IAS 16 §66Impairments or losses of items, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events and are accounted for separately.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• An entity's reporting date is 31 December 20X1. In October 20X1, a fire destroys a warehouse with a carrying amount of 40,000. On 10 December 20X1, the insurer agrees in writing to pay compensation of 55,000, paid in January 20X2. A replacement warehouse will be built in 20X2. What treatment applies in the 20X1 financial statements?L3