BIJAY KUMAR (CA) (133 Points)
26 October 2012Hie Frnds, One of My client is a listed Mfg Co.
Prevoius year due to earthquake they lost some stock bt nw they are received Insurance Claim for that.
Company was very regular in paying insurance premium...
Now the question is wheather it is a Ordinary/Extraodinary/Exceptional item....?
Reply with relevant Case or AS or Guidenace Note are mostly welcomed
Ganeshbabu K
(Audit and Tax Advisory)
(48564 Points)
Replied 26 October 2012
As per AS-5
Extraordinary items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur frequently or regularly
Para 8 of AS-5 States Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period.
The nature and the amount of each extraordinary item should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived.
Both the transactions that is loss from earthquake and compensation are extra ordinary in nature therefore seperate disclosure should be preffered Having regards to the words "in a manner that its impact on current profit or loss can be perceived" Even the second option (net of expense appears correct 'cause correct picture of P&L can be perceived .
(In my View)But to be on safer side 1st option is better (i.e seperately disclosing EACH item) btw Para 11 includes eathquake as one of the event or transaction which may lead to extraordinary item.
YAshwi
(Risk Analyst)
(141 Points)
Replied 26 October 2012
It is important for us to understand whether the same is being treated as an exceptional item or an extra-ordinary item.
It is to be noted that an exceptional item is not same as an extra-ordinary item. While the former is derieved from ordinary business transactions , extra-ordinary items are material and not part of a company's ordinary business dealings.
Accordingly, the claim received is an extra-ordinary activities since the claim received on damage stock is not a part of ordinary activity of the concern.
Further, as per revised schedule VI , the net impact of extra-ordinary or exceptional items needs to be disclosed on the face onf profit and loss account and details to be provided in the notes to accounts forming a part of finnacial statments.
Hence, the claim received net of any expenses incurred for getting that claim should be disclosed as an extra-ordinary activity on the face of profit and loss account.
CAclubindia
