Sometime, it may be possible to goods lost by fire, theft or other natural disaster and insurance claim can be claimed for this loss if inventories are insured.
Journal proper refer to the special types of journals which occur occasionally.
Journal proper contents loss by fire and theft 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.
PROBLEM: 11
XYZ Trading Company informed that:
Out of the goods (inventory, merchandise) of Rs 750,000; 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) To Purchase account (Being- goods lost by fire but insurance company did not accept claim due to suspicious circumstance of fire) |
Dr |
|
50,000
|
50,000
|
Trading Account
Particulars |
|
Amount |
Particulars |
Amount |
To Purchase Less: Free sample
|
750,000 (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 Loss by fire account (P&L) To Purchase account (Being- goods lost by fire but insurance company Accepted partial claim) |
Dr Dr |
|
35,000 15,000
|
50,000
|
Trading Account
Particulars |
|
Amount |
Particulars |
Amount |
To Purchase Less: Free sample
|
750,000 (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 Loss by fire account (P&L) To Purchase account (Being- goods lost by fire but insurance company Accepted partial claim) |
Dr Dr |
|
50,000 Nil
|
50,000
|
Trading Account
Particulars |
|
Amount |
Particulars |
Amount |
To Purchase Less: Free sample
|
750,000 (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 |
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 =
Basic Problem: 11
The following extracted information is available:
(a) Goods worth Rs 50,000 were destroyed by fire.
(b) Goods of Rs 36,000 lost by theft but the company refused the claim due to suspicious circumstance.
(c) The insured stock was lost by fire Rs 50,000 but the company admitted a claim of Rs 35,000 only.
(d) Goods worth 22,000 lost by fire insured and the company admitted the full claim.
Required: Journal entries
***********
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