Accounting steps when a group is onerous
I've seen these 2 accounting steps for when a group is onerous:
- Book the Loss component on the Profit & loss statement as part of the LRC
- Recognize the loss as Insurance Service Expense for the net outflow and at subsequent measurement, LC is released from the ISE and amortized from LRC.
Are these 2 statements doing the same thing? And if not, when you book the Loss component on the Profit&Loss statement, what happens to it at subsequent measurement? Does it also get released and amortized from LRC?
Thanks!
Comments
Well they are not doing the same thing but are rather the process that you need to undertake when there is an onerous group of contracts. At initial recognition, your loss is immediately recognized in the P&L (say 200), and at each subsequent period (every quarter), the LC of 200 is amortized and eventually goes to 0 (50 every quarter).
Is this statement "recognize a loss in the insurance service expense immediately for the net outflow for the onerous group" the same as recognizing the LC on the P&L statement?
Also, if there is no LC ie non onerous, then nothing recognized on P&L ?
Well, say you have a LC of 200, then you would immediately record a loss of 200 in your P&L statement while holding a LC of 200 on your balance sheet, which is the amortized as coverage is provided.
If non-onerous, nothing goes onto the P&L at initial recognition