18 February 2011
A pvt. ltd. company in India has its office in Mumbai. This office gets damaged by fire. The doors, windows,filing cabinets, flooring, air conditioners, computers and various office equipments and records are damaged. In the books of the co. , the above items destroyed do not appear anywhere in the books and even if they appear they appear in negligible written down value. The loss is however estimated at Rs. 2,50,000/-. How should the company pass entry for the above loss in its books and how should the co. proceed to claim the amount of fire insurance. There is a fire insurance policy for office premises of Rs. 5 lakh. Please offer the guidance and also explain how will accounting treatment be given for : 1) loss due to fire 2) insurance claim when received.
21 February 2011
What ever appear in your books needs to be written off. By this entry:
Loss by fire (Furniture) A/c Dr. To Fixed Assets (at their respective values)
If something is not recored in your books & destroyed by fire then obviously no entry shall appear in books for such asset.
For any receipt of Insurance claim be sure that such claim is processed & allowed to you or else ignore it & just give a note in notes to accounts.
If you receive amount in same year then Make an entry as:
Bank A/c Dr. To Loss by fire (Furniture) A/c (By the amount of loss recovered)
If amount is received in another year then pass the earlier loss to P&L in the same year with a note in notes to accounts.
Make this entry in the year of receipt of amount:
Bank A/c Dr. Profit & Loss Account (With amount of claim)
Care should be taken for the amounts of claims received for the part of assets not recorded in books. Such claim amount should not be received in books as that was not earlier written off.
If there is any shortfall or excess receipt from insurance claim it shall be your cap gain or cap loss.
CAclubindia
