A Ltd company had a fire at one it's two units completely destroying all the stock. Whilst the company had Insured the stock there is a dispute regarding the Insured value and there is the possibility that no Insurance payout will be received. In order to recognise a potential loss how should the entries be correctly made in the accounts?
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Until you have an insurance payout, you have an actual loss:
Cr Stock (B/S)
Dr Stock Losses (P&L)
Depending on value, and whether it overlaps a year end, you may need to make disclosures at that time.
If the stock is not included within closing stock (as no longer exist) the loss will already be reflected within the accounts.
If you want to avoid GP% distortion you might, for management purposes, Dr Loss re fire as an expense head and Cr Cost of sales.
I doubt an insured value issue will mean no insurance payout, these tend to result in scaled back payout (fraction re claim often based on Declared value/True Value x claimed amount)
I agree that I would want to be showing the expense somewhere other than the usual COS lines, for internal purposes.