Discuss which the equipment was specifically purchased

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For each of the situations below, outline the accounting treatment you would recommend and give the reasoning principles involved.

1. At the year end there was a debit balance in the books of a company for Sh.150,000 representing an estimate of the amount receivable from an insurance company for an accident claim. In May 2016 before the directors had agreed on the final draft of the published accounts, the amount of the claim was finally settled as Sh.186,000.

2. A company has an item of equipment which cost Sh.4,000,000 in 2016 and was expected to last for ten years. At the beginning of the year ended 30 April 2017 the book value was Sh.2,800,000. It is now thought that the company will soon cease to make the product for which the equipment was specifically purchased. Its recoverable amount is only Sh.800,000 at 30 April 2017.

Reference no: EM131812409

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