Suppose Mr. X is an employee of ABC Co. Ltd. The Company has a movie camera (Original cost Rs.60,000/- and W.D.V Rs.50,000/-)and the same is a fixed asset as per books of accounts of the Company. Mr. X has given charge to take care of the movie cam. One day the same has been reported as lost by Mr. X to his employer. Mr. X wants to compensate for this. Accordingly, he has purchased a new movie camera (having higher technical advantage than the previous one) without informing his employer at a cost of Rs.35,000/- and collected the bill in the name of M/s ABC Co. Ltd. He then prays before the management to accept this. Now, my questions are: 1. Would it be right for the ABC Co. Ltd. to accept proposal of Mr. X? 2. If ABC Co. Ltd. accepts the proposal of Mr. X and takes possession of the new movie camera then what accounting entry is require to be passed?
Please reply in detail with correct accounting treatment and figures in respect of above situation.
25 June 2008
1) first, company have to book loss of rs. 50,000 for lost camera (as per company act dep. will be charged upto date of loss, then balance wdv will be booked as loss)
2) for new camera, if company don't pay anything to X, the accounting for the camera shud be done with nominal amt like rs. 1, if company pays X the cost, then it is simple purchase.
25 June 2008
1) Whether to accept or reject the proposal is the prerogative of the company.
2) If the employee replaces the camera which is exactly as per the specification of the lost camera, the company need not pass any entry except that it has to take note of the changed serial number of the replacement and a note in the remarks column of the assets register of the fact of replacement supported by a detailed memo from the employee, together with the company's approval for such replacement. If the camera is of a different specification and the company accepts it, then pass entries for the lost camera debiting the employee and crediting the asset and capitalise the camera at the value at which it was actually purchased by the employee giving credit to the employee. The net balance in the employees account represents the money recoverable from him. If the company decides to waive the amount the amount will be booked as loss.
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