Treatment of money received from legal case settlement
How does a company that has received $ x million from a settlement case, account for the money in financial statements. My guess is that on I/S it will show up as extraordinary item.
How to classify it on CF statement and what will be the tax treatment?
Thanks in advance for sharing your thoughts on this!
I assume it is above the line, but just broken out so it will be in EBT and be taxed. The cash flow starts with Net Income so the legal settlement is already included (essentially in operating cash flow). Remember it only appears on the cash flow when the cash comes in. If the company wins suit and doesn't get paid right away then the settlement would actually be "subtracted back" to back out the effect shown on the income statement.
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