Accounting entry for loss of stock in a fire

A company had a fire at a unit and stock all destroyed. Stock was insured but dispute with Ins. co

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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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Routemaster image
By tom123
15th May 2017 12:30

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.

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paddle steamer
By DJKL
15th May 2017 12:36

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)

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Replying to DJKL:
Routemaster image
By tom123
15th May 2017 12:59

I agree that I would want to be showing the expense somewhere other than the usual COS lines, for internal purposes.

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