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Answer :
Final answer:
The loss of a vehicle due to non-detectable fraud rental would be recorded as a loss on an income statement, impacting the financial statements. The vehicle asset would be removed from the balance sheet, and if insurance does not cover the loss, it is recognized immediately, affecting cash flow depending on the timing of the losses and insurance recovery.
Explanation:
The loss of a vehicle due to a non-detectable fraud rental would impact the financial statements of a company by showing up as a loss on the income statement. On the occurrence of such an event, the company would remove the asset (vehicle) from the balance sheet and recognize any remaining book value as a loss. The entry would typically consist of a debit to a loss account (e.g., “lost assets” or “fraud loss”) and a credit to the vehicle asset account to remove it from the books.
Furthermore, if an insurance recovery is not probable, the loss is recognized immediately. However, if insurance coverage is likely to cover the loss, the company would record a receivable for the expected insurance recovery, which would offset the loss. The impact on cash flow would depend on the timing of the insurance recovery or any potential out-of-pocket expenses incurred by the company due to the fraud. The overarching principle is that the loss needs to be recorded in the period in which the fraud is detected in order to give a true and fair view of the financial position of the company.
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