In: Business and Management

Submitted By amorales
Words 879
Pages 4
Case Facts
Eureka Corporation (Eureka) 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 Eureka’s manufacturing plant inoperable and has also forced Eureka to rent temporary office space in Houston to accommodate the sales force. Specific information relating to the rental of office space include:
• Eureka will continue to make fixe monthly lease payments for machinery at plant
• Processing volume in the Denver shared service center is down by 40% due to the shut down plant
• Eureka allocates the cost of the shared service center on volume basis
Eureka’s legal counsel has determined that under the company’s property and casualty insurance, the company is entitled to insurance recovery for the fair value of the manufacturing plane in excess of the deductible, and that such recovery is probable.
Specific Issues to Resolve
• How should Eureka account for the anticipated insurance recovery for the manufacturing plant when such recovery has not been received but is deemed probable?
Additional Facts
Eureka’s legal counsel has also determined that under its business interruption insurance policy, Eureka is entitled to insurance recovery, subject to certain maximum limits and in excess of the deductible, for:
1. Fixed monthly lease payments for the leased machinery
2. Rental costs for the temporary sales office
3. Shared service center cost ordinarily allocated to the manufacturing plant’s operations; and
4. Gross margin that was not earned due to the suspension of normal operations
Legal counsel has also determined that such recovery is probable.
Additional Specific Issues to Resolve
How should Eureka account for the anticipated insurance recovery under the business interpretation insurance policy when such recovery has not been received but is deemed…...

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