CA Inter P1 · Chapter 4 · Question 7 of 8
Case: Saffron Hotels Ltd has recognised a provision of ₹8,00,000 for damages payable to a guest. Its insurer has confirmed in writing, making it virtually certain, that ₹5,00,000 will be reimbursed. How is this presented under AS 29?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) A provision of ₹8,00,000 and a separate asset of ₹5,00,000 in the balance sheet; the expense may be shown net at ₹3,00,000
Explanation
Under AS 29, a reimbursement that is virtually certain is recognised as a separate asset, not netted against the provision, and the amount recognised cannot exceed the provision. In the statement of profit and loss, the expense relating to the provision may be presented net of the reimbursement recognised (8,00,000 - 5,00,000 = 3,00,000).
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