CAF-6 · Chapter 1 · Question 5 of 15
Gamma Ltd is being sued for damages of Rs. 5 million, and a provision is recognized for this full amount. Gamma expects to recover Rs. 3 million from a sub-contractor, and this recovery is virtually certain. How should this reimbursement be accounted for in the statement of financial position?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Recognize a separate asset of Rs. 3 million and a provision of Rs. 5 million.
Explanation
When reimbursement is virtually certain, it is recognized as a separate asset. The asset recognized cannot exceed the amount of the provision. They should not be netted off in the statement of financial position.
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