[Heena93]

Hey guys. Please help me out!

As per FASB rule for loss contingencies, If an entity has recognized insurance or other recoveries related to its loss contingencies, the potential recovery amounts shall not be netted (offset)
against amounts accrued for loss contingencies.

Now, I am doing this SIM in Becker. It says –
This matter commenced in Nov, Year 1. The plaintiff alleges discrimination relating to his termination on March 17, Year 1. The case was tentatively settled for $35,000, which will be covered by XYZ insurance carrier.

Now, according to FASB rule, the 35000 should be accrued as a liability in the Financial Statements but the answer is NOT to accrue in the financial statements because it will be covered by insurance.

Please advise,

Thankyou!

[Anonymous]

It is a liability of the company's insurance carrier.Same principle with your own car insurance. If you get into an accident, any thing above the deductible is paid by the insurance company.

So the liability is on the insurance's books.

The principle I think you are confusing it with is estimating the amount and the probability. Still applies, just not in this case.

[Author]

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