What is Involuntary conversions and insurance recoveries?
In short
When an asset is destroyed or taken, for example by fire or condemnation, and the company receives money, a gain or loss is recognized in the financial statements even if the proceeds are reinvested in a replacement.
Key takeaways
- An insurance recovery is recognized when probable, up to the amount of the loss already recognized.
- Recoveries above the loss are gain contingencies, recognized when realized.
- For tax purposes, the gain can often be deferred, creating a temporary difference.
Where it's tested
FAR: Property, Plant & Equipment — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under US GAAP, a long-lived asset held for use is tested for impairment. The carrying value is $500,000, undiscounted future net cash flows are $520,000, and fair value is $460,000. What impairment loss, if any, should be recognized?