Adjustments in Final Accounts: Goods Lost and Insurance Claim

 

Adjustments in Final Accounts

Adjustment entry means not adjusted while preparing trial balance.

It is also known additional information.

Almost all the adjustment entry effects dual aspect.

One is debit and other is credit. 

There are a number of adjustments to be made while finalizing the financial statements.

But our discussion will be limited to the following adjustments (limited by the curriculum):

 

MAJOR ADJUSTMENTS OF FINAL ACCOUNTS:

1	Dividend	13	Bad debts, provision and discount
2	Transfer to reserve and fund	14	Recovery of bad debts
3	Adjustment of tax	15	Goods loss by fire and insurance claim
4	Closing stock	16	Goods distribute as free sample
5	Outstanding expenses	17	Manager’s commission
6	Prepaid expenses	18	Bonus or pension to employees
7	Accrued revenue  or income	19	Create reserve or fund
8	Unearned or prepaid revenue	20	Goods sold on sale or return basis
9	Depreciation on assets	21	Hidden adjustment:
10	Appreciation on assets		(a) Interest on loan or debenture
11	Written off or amortized		(b) Interest on investment
12	Purchase or sale of fixed assets		(c) Monthly rent and salary

 

Goods or Inventory Lost and Insurance Claim

It is possible to goods loss by fire or theft in the showroom.

Sometimes it may loss by accident while dispatching the goods.

This loss is abnormal loss in nature.

If goods are not insured, it is total loss to organization.

This loss is deducted from purchase of goods and debited in profit and loss account.

If goods are insured, insurance company accepts this loss.

Organization receives compensation from insurance company.

Sometimes, insurance company does not accept claim if there is suspicious circumstance.

There are three alternative solutions for goods lost by fire. They are:

Goods lost but not insured means there is total loss.

Goods lost but insurance company paid partial claim, there is partial loss.

Goods lost and insurance company accepted full claim, there is not any loss.

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

 

ADJUSTMENT: 15A

Extracted Trail Balance

Particulars	Debit	Credit
Purchase	750,000

Additional information:

Stock worth Rs 50,000 was destroyed by fire.

Required: Journal entry and show in other effect for final account purpose

(a) The stock was insured but the company refused the claim due to suspicious circumstance of fire.

(b) The stock was insured but the company admitted a claim of Rs 35,000 only.

(c) The stock was insured and the company admitted the claim in full.

SOLUTION:

(a) The stock was insured but the company refused the claim due to suspicious circumstance of fire.

Journal Entries

Date	Particulars		LF	Amount	Amount
	Loss by fire account  (P&L)	Dr		50,000
	To Purchase account
	(Being- goods lost by fire but insurance company did
	not accept claim due to suspicious circumstance of fire)

 

Trading Account

Particulars		Amount	Particulars	Amount
To Purchase	750,000
Less: Free sample	(50,000)	700,000

 

Profit and Loss Account

Particulars		Amount	Particulars	Amount
To Loss by fire		50,000

 

Balance Sheet

Liabilities	Amount	Assets		Amount
		Current assets:
		Insurance claim		Nil

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 (b) The stock was insured but the company admitted a claim of Rs 35,000 only.

Journal Entries

Date	Particulars		LF	Amount	Amount
	Insurance claim account	Dr		35,000
	Loss by fire account  (P&L)	Dr		15,000
	To Purchase account				50,000
	(Being- goods lost by fire but insurance company
	Accepted partial claim)

 

Trading Account

Particulars		Amount	Particulars	Amount
To Purchase	750,000
Less: Free sample	(50,000)	700,000

 

Profit and Loss Account

Particulars		Amount	Particulars	Amount
To Loss by fire		15,000

 

Balance Sheet

Liabilities	Amount	Assets		Amount
		Current assets:
		Insurance claim		35,000

 

(c) The stock was insured and the company admitted the claim in full.

Journal Entries

Date	Particulars		LF	Amount	Amount
	Insurance claim account	Dr		50,000	50,000
	Loss by fire account  (P&L)	Dr		Nil
	To Purchase account
	(Being- goods lost by fire but insurance company
	Accepted partial claim)

 

Trading Account

Particulars		Amount	Particulars	Amount
To Purchase	750,000
Less: Free sample	(50,000)	700,000

 

Profit and Loss Account

Particulars		Amount	Particulars	Amount
To Loss by fire		Nil

 

Balance Sheet

Liabilities	Amount	Assets		Amount
		Current assets:
		Insurance claim		50,000

 

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