Loss by Fire and Loss by Theft in Journal Proper

 

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

 

Goods, Merchandise or Inventory Lost

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

###########

Click on link for YouTube videos

ACCOUNTING EQUATION http://tiny.cc/c89jkz

BASIC JOURNAL ENTRIES IN NEPALI http://tiny.cc/uaakkz

BASIC JOURNAL ENTRIES http://tiny.cc/8aakkz

JOURNAL ENTRY AND LEDGER http://tiny.cc/caakkz

LEDGER http://tiny.cc/haakkz

SUBSIDIARY BOOK http://tiny.cc/399jkz

CASH BOOK http://tiny.cc/889jkz

TRIAL BALANCE & ADJUSTED TRIAL BALANCE http://tiny.cc/c59jkz

BANK RECONCILIATION STATEMENT (BRS) http://tiny.cc/q59jkz

DEPRECIATION http://tiny.cc/ugakkz

FINAL ACCOUNT: CLASS 11 http://tiny.cc/y89jkz

ADJUSTMENT IN FINAL ACCOUNT http://tiny.cc/keakkz

CAPITAL AND REVENUE http://tiny.cc/peakkz

SINGLE ENTRY SYSTEM http://tiny.cc/n19jkz

NON-PROFIT ORGANIZATION (NON-TRADING CONCERN http://tiny.cc/j09jkz

GOVERNMENT ACCOUNTING http://tiny.cc/hcakkz

GOSWARA VOUCHER (JOURNAL VOUCHER) http://tiny.cc/hcakkz

###########

 (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

***********

Thank for investing your time.

Please comment on article.

You can help me by sharing this article at your social media platform.

 

Jay Google, Jay YouTube, Jay Social Media
जय गूगल, जय युट्युब, जय सोशल मीडिया