Journal entries if the following line items are given as
adjustment in balance sheet and p l a/c
Fire accident of inventory
Case 1. No insurance coverage
Case 2.partly insurance coverage
Case 3. Fully insurance coverage
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Answer Posted / bharathi
case 1 No Insurance Coverage
Inventory value(Fire accident) portion to be adjusted with Total Inventory Value it will reflect in two places one in closing Stock in Trading a/c and the same reflect in Balance Sheet too. The Total Value of Fire accident to be treated as loss.
(For eg. Total Inventory Value Rs.100 (Fire Accident Rs.25))
Following Journal to be passed in Trading A/c
Loss on Fire Accident a/c dr 25
To Inventory A/C 25
Inventory Value Become 75 now - only these amount will reflect as closing stock in trading a/c and balance sheet
In First Case there is no insurance coverage hence we have to bear the entire loss
case 2 Partly Insurance Coverage
Inventory value(Fire accident partly insured) portion to be adjusted with Total Inventory Value it will reflect in two places one in closing Stock in Trading a/c and the same reflect in Balance Sheet too. The Part Value(if percent (%) available according to that it will cover) of Fire accident to be treated as loss. Stock in Qty to be adjusted
(For eg. Total Inventory Value Rs.100 (Fire Accident Rs.25))
Insurance Coverage Rs.12.50
Loss on Fire Accident a/c dr 12.50
To Insurance(Received/receivable A/C 12.50
Inventory Value Become 75 now - only these amount will reflect as closing stock in trading a/c and balance sheet
In the second case only part of the amount covered by the insurance company. Hence we have to bear 1/2 portion loss.
case 3 Fully Insurance Coverage
Inventory value(Fire accident Fully insured) portion not to be adjusted with Total Inventory value due to the full portion of the insured inventory will be refunded by the insurance co. so there is no monetary loss but any way stock in qty to be adjusted 100 - 25 = 75
(For eg. Total Inventory Value Rs.100 (Fire Accident Rs.25))
Insurance Coverage Rs.25
Loss on Fire Accident a/c dr 25.00
To Insurance A/C 25.00
Inventory Value Become 75 now - only these amount will reflect as closing stock in trading a/c and balance sheet
In the third case we have lost nothing because full fire accident portion covered by the insurance company
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