Case Hurricane William

Euker Corporation (Euker) has a manufacturing plant and sales office in the Gulf Coast Region. The damage caused by Hurricane William (Hurricane), a Category 5 hurricane, has rendered Eukers manufacturing plant inoperable and has also forced Euker to rent temporary office space in Houston to accommodate its sales force. Euker will continue to make fixed monthly lease payments for idle (but otherwise operable) machinery in the plant. Additionally, the processing volume for Eukers shared service center in Denver is down 40% as a result of the shut down of the manufacturing plant. Euker allocates the cost of the shared service center on a volume basis and consequently a related unfavorable volume variance exists.

Eukers legal counsel has determined that under Eukers property and casualty insurance policy, Euker is entitled to insurance recovery for the fair value of the manufacturing plant in excess of the deductible, and that such recovery is probable.

Re quire d:

How should Euker account for the anticipated insurance recovery for the manufacturing plant when the insurance proceeds have not been received but receipt is deemed probable?

Additional Facts:

Eukers legal counsel has also determined that under its business interruption insurance policy Euker is entitled to insurance recovery, subject to certain maximum limits, for (1) fixed monthly lease payments for the leased machinery, (2) rental costs for the temporary sales office, (3) shared service center costs ordinarily allocated to the manufacturing plants operation, and( 4) gross margin that was not earned due to the suspension of normal operations, all in excess of the deductible. Legal counsel has also determined that such recovery is probable.

Re quire d:

How should Euker account for the anticipated insurance recovery under the business interruption insurance policy when such recovery has not been received but is deemed probable?