Loss by floods

This query is : Resolved

Pushkraj Sathe (Querist)
Follow

12 November 2008 Finished Goods worth Rs.20 lacs(MRP)were damaged due to floods.The accountant suggested the following entry:
Loss by Flooding a/c Dr 20 lacs
To Trading account Cr 20 lacs
(Being loss by floods)
The auditor suggested that no entry should be passed;logic he puts forward is that the closing stock valued at the close of the year has taken cognisance of the loss by not valuing so much of the stock as is lost.Who is correct.Why?

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
Follow

12 November 2008 It is a wrong not to pass an entry for loss of goods by flooding or any other peril. You have to pass that entry. In that loss account, you can credit insurance claim if any admitted.

Pushkraj Sathe

Pushkraj Sathe (Querist)
Follow

12 November 2008 Dear SS,is it correct to include the profit element in the entry, because Rs.20 lacs is the MRP of the goods not the cost.Can you examine the Accounting Standard on Revenue Recognition in this aspect.Thanks for the answer.

Upgrade to CAclubindia Pro. Subscribe Now!