Question

Jonesboro City suffered severe structural damage after a hurricane hit August 10, 20x7. Hurricanes are common in the area, but it had been a half of a century since the last hurricane hit. The building was purchased in 11 years earlier for $2 million and had accumulated depreciation of $600,000 as of June 20X7. An impairment loss of $190,000 was prepared during a cost analysis with the engineers. The city expects to receive recoveries from insurance claims of $90,000 for damages to the building. Response: Explain the criteria that the loss would need to meet to be reported as an extraordinary item or a special item? What are the GASB requirements for reporting the insurance recovery in the following fiscal year? Prepare the journal entry for the impairment loss for governmental activities at the government-wide level.

Answer 1

A special item is a large expense or source of income that a company does not expect to recur in future years.

An extraordinary item consists of gains or losses included on a company's income statement from events that are unusual and infrequent in nature.

Insurance policy recovery shpuld be netted against impairment loss.

Particulars	Debit	Credit
Impairment Loss	$ 1,00,000
cash / bank	$     90,000
To Building		$ 1,90,000
(Being Building impared)