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stock destroyed due to fire - whats the treatment in books

preethamcafinal (ca final) (53 Points)

25 December 2007

hi all,

what entries u will pass in the books of accounts for the followings

1. goods destroyed due to fire

2. Insurance claim received for the same.

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9 Replies

Miss Komal Mantri (Chartered Accountant ) (1974 Points)
Replied 25 December 2007

entry shld be

insurance co. a/c dr
loss by fire a/c dr
to purchases

bank
to insurance co.

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Sathish Karunakaran (ACA) (614 Points)
Replied 26 December 2007

Dr. Bank A/c. (Amount Recd.) Dr. Loss of Stock by Fire A/c. in P&L (Difference between full value of stock destroyed and compensation) Cr. Trading or Manufacturing A/c. (Full value of stock destroyed) Disclose as per AS 5

gargi (Chartered Accountant) (152 Points)
Replied 26 December 2007

Bank a/c. Dr. (amt. recd. from ins.) Loss by fire a/c. (amt. of loss - diff. bet. full value of goods destroyed by fire and amt. recd. from insurance) To Fin. stock or raw mat stock a/c. (as the case may be) (with full value of goods destroyed) P & L a/c. Dr. To Loss by fire a/c. Disclosure as per relevant AS i.e., AS - 5 If the event is after the B/S date, then disclosure should be as per AS - 4.

SHAMIM HAMEED (Manager - Finance & Accounts) (62 Points)
Replied 27 December 2007

1. If destruction took place during the financial year:- a) If there is insurance claim: Insurance co. a/c dr To Purchases b) If no insurance claim: Loss on fire a/c dr To Purchases 2. When insurance claim is fully received: Bank a/c dr To Insurance co. 3. When insurance claim is partly received: Bank a/c dr Loss on fire a/c dr To Insurance co. 4. If destruction took place after financial year: Just disclose in directors report as per AS 5 5. If you are not sure about the receipt of claim, simply show that as loss as per AS 9.

Ramkrishna Mokashi (Chartered Accountant) (734 Points)
Replied 29 December 2007

For Insurance Claim Accrued: Dr. Insurance Co. A/c (With amount of claim) Dr. Loss Due to Fire (Difference of two) Cr. Goods Distroyed By Fire (The Value of Stock Distroyed) This Account will be grouped in Manufacturing / Trading A/c. There is no need to reduce purchase or charge to stock a/cs.

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INSURANCE CLAIM RECEIABLE A/C DR TO PURCHASES A/C. BANK A/C. DR T0 INSURANCE CLAIM RECEIABLE IF AMOUNT SHORT RECD :- PROFIT & LOSS A/C DR TO INSURANCE CLAIM RECEIABLE