Accounting treatment for disputed balances with an affiliate.

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Multiple Choice

Accounting treatment for disputed balances with an affiliate.

When a balance with a related party is disputed, you don’t have reliable evidence that the amount will actually be recovered. Revenue recognition and asset recognition both require that the amount is collectible with some certainty. Because the recovery is uncertain due to the dispute, you should not credit or recognize a recoverable amount. In practice, you would reflect the dispute through an appropriate reserve or disclosure rather than booking a recoverable asset or revenue. That’s why the correct approach is not to take credit for recoverable.

When a balance with a related party is disputed, you don’t have reliable evidence that the amount will actually be recovered. Revenue recognition and asset recognition both require that the amount is collectible with some certainty. Because the recovery is uncertain due to the dispute, you should not credit or recognize a recoverable amount. In practice, you would reflect the dispute through an appropriate reserve or disclosure rather than booking a recoverable asset or revenue. That’s why the correct approach is not to take credit for recoverable.

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