Accounting for Compensation Received on Loss of Property, Plant, and Equipment

Impairments or losses of items of property, plant and equipment, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events and are accounted for separately as follows:

(a) impairments of items of property, plant and equipment are recognised in accordance with Ind AS 36;

(b) derecognition of items of property, plant and equipment retired or disposed of is determined in accordance with this Standard;

(c) compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in determining profit or loss when it becomes receivable; and

(d) the cost of items of property, plant and equipment restored, purchased or constructed as replacements is determined in accordance with this Standard.

When the principles of para 65 and para 66 of Ind AS 16 are followed, a company shall separately account for the loss of PPE, insurance claim amount, and recognition of new assets in books of accounts. This discussion includes a case study on compensation received for loss of PPE putting light on derecognition of PPE, insurance claim amount, and recognition of new assets.

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