Sometime, it may be possible to goods lost by fire, theft or other natural disaster. Insurance claim can be claimed for insured goods.
In the business, it is possible to goods (stock, merchandise and inventory) may loss by fire, theft or burglary.
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:
1. Goods lost but not insured, there is total loss.
2. Goods lost but insurance company paid partial claim, there is partial loss.
3. Goods lost and insurance company accepted full claim, there is not any loss.
Insurance claim account |
Dr |
Claim accepted by insurance company |
Increase in assets |
P&L account (loss) |
Dr |
Loss or claim not accepted |
Increase in loss |
To Purchase account |
|
Total loss of goods |
Decrease in asset |
(Being- goods lost by fire and insurance … |
|
|
|
Journal Entry
In the book of …………
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Insurance claim (Insurance Company) A/c |
Dr |
|
xxxx |
|
|
P&L account (loss) |
Dr |
|
xxxx |
|
|
To Purchase account |
|
|
|
xxxx |
|
(Being- goods lost by fire and insurance ………) |
|
|
|
|
|
P&L account (loss) |
Dr |
|
xxxx |
|
|
To Purchase account |
|
|
|
xxxx |
|
(Being- goods lost by theft) |
|
|
|
|
|
|
|
|
|
|
#######
Click on link for YouTube videos topic wise : |
|
Accounting Equation |
|
Basic Journal Entries in Nepali |
|
Basic Journal Entries |
|
Journal Entry and Ledger |
|
Ledger Account |
|
Subsidiary Book |
|
Cash Book |
|
Trial Balance and Adjusted Trial Balance |
|
Bank Reconciliation Statement (BRS) |
|
Depreciation |
|
Click on link for YouTube videos chapter wise: |
|
Financial Accounting and Analysis (All videos) |
|
Accounting Process |
|
Accounting for Long Lived Assets |
|
Analysis of Financial Statement |
#####
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 17
TS Traders has following extracted transactions:
(a) Goods loss by fire Rs 25,000.
(b) Goods loss by fire Rs 35,000 but insurance company accepted claim only Rs 15,000.
(c) Goods loss by fire Rs 40,000 insurance company does not accepted any claim.
(d) Goods loss by fire Rs 50,000 and insurance company accepted full claim.
(e) Goods loss by fire Rs 60,000 insurance company accepted only 60% claim.
(f) Goods loss by theft Rs 5,000.
Required: Journal entries
SOLUTION:
Journal Entry for American Style
Date |
|
|
Debit $ |
Credit $ |
(a) |
Income statement account (loss by fire) |
|
25,000 |
|
|
Purchase account |
|
|
25,000 |
|
To record goods lost by fire |
|
|
|
|
|
|
|
|
Journal Entry for European Style
Date |
|
|
|
€ |
€ |
(a) |
Income statement account (loss by fire) |
Dr |
|
25,000 |
|
|
Purchase account |
|
|
|
25,000 |
|
To record goods lost by fire |
|
|
|
|
|
|
|
|
|
|
Journal Entries
In the book of TS Traders
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
a |
Profit and loss account (loss) |
Dr |
|
25,000 |
|
|
To Purchase account |
|
|
|
55,000 |
|
(Being- goods lost by fire) |
|
|
|
|
b |
Insurance claim account |
Dr |
|
15,000 |
|
|
Profit and loss account (loss) |
Dr |
|
20,000 |
|
|
To Purchase account |
|
|
|
35,000 |
|
(Being- goods lost by fire and insurance company |
|
|
|
|
|
accepted partial claim) |
|
|
|
|
c |
Insurance claim account |
Dr |
|
Nil |
|
|
Profit and loss account (loss) |
Dr |
|
40,000 |
|
|
To Purchase account |
|
|
|
40,000 |
|
(Being- goods lost by fire and insurance company |
|
|
|
|
|
did not accepted any claim) |
|
|
|
|
d |
Insurance claim account |
Dr |
|
50,000 |
|
|
Profit and loss account (loss) |
Dr |
|
Nil |
|
|
To Purchase account |
|
|
|
50,000 |
|
(Being- goods lost by fire and insurance company |
|
|
|
|
|
accepted full claim) |
|
|
|
|
e |
Insurance claim account |
Dr |
|
36,000 |
|
|
Profit and loss account (loss) |
Dr |
|
24,000 |
|
|
To Purchase account |
|
|
|
60,000 |
|
(Being- goods lost by fire and insurance company |
|
|
|
|
|
accepted partial claim, Rs 60,000 @ 60% = Rs 36,000) |
|
|
|
|
f |
Loss by theft account (P&L account) |
Dr |
|
5,000 |
|
|
To Purchase account |
|
|
|
5,000 |
|
(Being- goods lost by theft) |
|
|
|
|
Keep in Mind (KIM)
Here, credit in purchase means purchased goods deducted. While goods purchasing, purchase account Dr While goods deducting, purchase account Cr |
###########
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 17
The following extracted information is available:
Goods worth Rs 50,000 were destroyed by fire.
Goods of Rs 36,000 lost by theft but the company refused the claim due to suspicious circumstance.
The insured stock was lost by fire Rs 50,000 but the company admitted a claim of Rs 35,000 only.
Goods worth 22,000 lost by fire insured and the company admitted the full claim.
Required: Journal entries
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