"In 2013 company X’s warehouse was destroyed by a tornado. Tornados are considered to be very rare in this part of the country. The book value of the warehouse was 10 million, and company X is insured. On June 30, 2013, company X bought one of its major suppliers. The fair value of net assets was greater than the purchase price. According to IFRS, should company X recognize an extraordinary item for tornado damage and should thety recognize negative goodwill on the balance sheet?" The answer states that “IFRS does not allow for IS items to be recognized as extraordinary events in the income statement” but wouldn’t the warehouse be considered a BS item? I can understand the recognition (or lack thereof) of the acquisition of the supplier, but the question wants to know if the tornado damage loss. The only thing I can think of is that because the company is insured, and extraordinary items include only uninsured losses, it’s not an extraordinary loss… Thanks!!
IFRS does not allow recognition of extraordinary items. Insurance is not extraordinary, but non-recurring.
IFRS does not recognize negative goodwill on the BS, it records the amount of assets acquired at fair value, and any profit difference on the consolidated income statement.