On November 30, 2021, an explosion occurred at OLIVE's plant totally damaging the plant and causing additional damages to adjacent neighbors. The carrying value of the plant on the company's books on the date of the explosion was at P5,000,000. It had a prevailing fair value of P6,000,000 prior to the explosion. No claims had yet been asserted against the company as of the date of authorization of the financial statements. The management as corroborated by their counsel, however believes that it is probable that the company would be responsible for damages to its neighbors and that P4,000,000 would be a reasonable estimate of its liability. The company had an insurance covering this type of accident. The insurance shall reimburse the company at 80% of the prevailing fair value of the asset prior to the fire while it has a 40% participation/deductible clause on any payments to be made for damages caused to neighbors. The reimbursements are virtually certain and that the company is no longer principally liable over the portion to be reimbursed for damages to other parties.

On November 30, 2021, an explosion occurred at OLIVE's plant totally damaging the plant and causing additional damages to adjacent neighbors. The carrying value of the plant on the company's books on the date of the explosion was at P5,000,000. It had a prevailing fair value of P6,000,000 prior to the explosion. No claims had yet been asserted against the company as of the date of authorization of the financial statements. The management as corroborated by their counsel, however believes that it is probable that the company would be responsible for damages to its neighbors and that P4,000,000 would be a reasonable estimate of its liability. The company had an insurance covering this type of accident. The insurance shall reimburse the company at 80% of the prevailing fair value of the asset prior to the fire while it has a 40% participation/deductible clause on any payments to be made for damages caused to neighbors. The reimbursements are virtually certain and that the company is no longer principally liable over the portion to be reimbursed for damages to other parties.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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