in my client case(Firm) car was stolen and insurance claim of Rs.100000/- was received from insurance company . what is accounting treatment. according to me this should not be credited to profit and loss account b,coz due to this tax liability will increase and on the other hand it is cash receipt . i want to reduce block as per I.T. act at which amount i should reduce my block. my accountant friend has found out its WDV of Rs.68000 and against that Rs.100000/- was received kindly suggest accounting treatment. My view is that not to give effect in profit and loss account , directly reduce or give credit to motor car account amount received from insurance company.
3 Replies
CA ADITYA SHARMA
(CA IN PRACTICE )
(16719 Points)
Replied 16 September 2011
THE CORRECT TREATMENT SHOULD BE 100000 SHOULD BE FIRSTLY ADJUSTED AGAINST VALUE OF CAR AND BALANCE SHOULD BE TRANSFFERED TO PROFIT AND LOSS ACCOUNT
Mohammad Afroz Ahmed
(Article student)
(51 Points)
Replied 17 September 2011
Hi Pratik,
My point of view is as follows:
Insurance co would not pay more than what was the estimated market value of the car. And also they would not pay any profit on the goods lost/destroyed. Thus money recieved from Insurance co. cannot be shown as profit.
So Appreciate the value of the car by Rs. 32000 and then pass an entry by debiting Cash/bank account and crediting car Account by Rs. 100000.
Thanks
Bhaskar Unnikrishnan CPA CMA
(Accounts / Administration)
(414 Points)
Replied 18 September 2011
Whatever excess than WDV is taxable and should be transferred to P&L a/c i.e. Rs 32,000
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