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Question
Insurance claim received by Albert Co. Ltd. of ₹ 5,00,000 for loss of machinery due to theft will be recorded in cash flow statement in which of the following manner?
Options
Added under operating activities as an extraordinary item and subtracted from operating activities also.
Subtracted under operating activities as an extraordinary item and added to operating activities also.
Added under operating activities as an extraordinary item and outflow under investing activities also.
Subtracted under operating activities as an extraordinary item and inflow under investing activities also.
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Solution
Subtracted under operating activities as an extraordinary item and inflow under investing activities also.
Explanation:
Although an insurance claim is a gain, it is not part of regular operations. Therefore, it is not added under operating activities. As it relates to loss of machinery (a fixed asset), the insurance amount is shown as an inflow under investing activities.
