Question 16. Lewis Co recently suffered a burglary and goods to the value of £450,000 were...

Question 16. Lewis Co recently suffered a burglary and goods to the value of £450,000 were stolen. Management of the company has filed a claim for this amount with the insurance company, which has confirmed that Lewis Co will receive compensation. How should this be treated in the financial statements?

Recognise a receivable for the full £450,000 in the statement of financial position

Do not recognise in the statement of financial position but disclose narrative details of the claim.

Do not recognise in the statement of financial position but disclose both narrative and the figure expected to be reimbursed.

No disclosure or recognition required

Expert Solution

Lewis Co has suffered a financial loss of £450,000. The Company has filed this claim and got approval from Insurance Company. This means the receivable part is certain and there is no uncertainty involved regarding the collection of the amount.

Lets analyze each option to identify the correct option-:

a) Since loss is fully insured and insurance company has confirm the payment of £450,000. So the entire amount should be uncertainty as receivables. This is the correct option (a)

b) Recognition in financial position is important because inventory is not present and instead insurance receivable as an asset will come in the financial position.

c) As said recognition is necessary in the financial position. The nature of the asset is changed from inventory to insurance receivable. Hence recognition if financial position can't be ignored.

d) Incorrect option as said above.

On the basis we clearly identified that option (a) is the correct answer. And Inventory will be credited by £450,000 and corresponding asset insurance receivable needs to be created.

ekkarill92 answered 2 years ago

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