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Accounting treatment for fixed assets insured

Aaditya Raghuraman (Article Assisstant) (73 Points)

23 May 2016

This is the present scenario of one our clients. They have a Fixed asset whose WDV as on 01.04.2015 is say Rs. 5,00,00,000/-. Due to the recent floods in chennai, a part of the fixed asset whose WDV is Rs. 1,50,00,000/- has been completely destroyed. The Insurer has replaced the entire Fixed assets with a new Fixed Asset worth Rs. 8,50,00,000/-. What is the entry to be passed? Does any of the accounting standard provides treatment for this type of a transaction?

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Naseem (Practice) (34 Points)
Replied 23 May 2016

AS 10 provide direction but not exactly (When a fixed asset is acquired in exchange or in part exchange for another asset, the cost of the asset acquired should be recorded either at fair market value or at the net book value of the asset given up, adjusted for any balancing payment or receipt of cash or other consideration. For these purposes fair market value may be determined by reference either to the asset given up or to the asset acquired, whichever is more clearly evident.)

in this situation you should record the assets worth 85000000 and difference should be treated as profit.