How should I deal with compensation received?

Under FRS 102, how should I deal with compensation received as a result of successful legal action?

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My company has received income as a result of legal action against another company for losses incurred due to their actions. Due to the uncertainty of the outcome we have not previously recorded anything for this.  But now that we have received the money I am trying to establish which paragraphs of FRS 102 are relevant. 

We do not qualify as a public benefit entity, so PBE34.64 cannot be applied and when I am looking through section 23 I am not convinced any quite fits into this situation.

Whilst I am convinced I should be recording this as income, any suggestions with the clear sections of FRS 102 that would guide me to this (or away from it) wouldbe appreciated.

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John Toon
By John Toon
15th Aug 2023 18:06

I can't point to a particular reference in FRS 102 but I'd be accounting for this as other income.

There may be an argument that part of this is turnover if that's what the compensation addresses, or there could be another to net off against a cost category, but unless these have been accrued I'm guessing compensation received is refunding costs incurred over a period of time.

You may want to disclose as an exceptional item as well if the numbers are significant enough

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Replying to johnt27:
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By paul.benny
15th Aug 2023 22:02

+1

It's worth looking at the definitions. I don't think this qualifies as turnover (it's not income from provision of goods and services), nor revenue (not arising from ordinary activities). It does seem to meet the definition of income, so other income as John said.

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paddle steamer
By DJKL
15th Aug 2023 18:12

23.4 An entity shall include in revenue only the gross inflows of economic benefits received and receivable by the entity on its own account

Does this not cover?

The other place to put the income is against the losses incurred in the first place but assume that was in a much earlier year.

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Pile of Stones
By Beach Accountancy
17th Aug 2023 11:26

When a client received an insurance payout for Covid-related losses, I put this as other income under FRS102. External accountants were happy with this allocation.

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By Montrose
17th Aug 2023 16:23

...."as a result of legal action" is ambiguous. Are you talking about an out of court settlement? If so what is the basis of calculating the sum received?
How were the costs incurred in conducting the legal process accounted prior to settlement? Were costs specifically awarded by the Court or as an item in the out of court settlement?
Was there a sum received by reference to interest?

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