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Fire loss of sold good by transporter.

Others 257 views 4 replies
I send good to clients by transporter. goods are destroyed in godown of transporter. loss amount is recoverable by transporter. so what will be entry of this.
Replies (4)

You have to treat it as separate supply for gst. However if you adjusting it with freight charges also. 

Then risk and rewards is not passed, that means you are still the owner of goods

you have to use consignment accounting where sales cannot be recorded. 

Record consignment loss initially

Finally, record insurance claim of recovered amount 

but if you already made a sale on a Second thought, sry about that, record loss and record claim as credit.

When goods are destroyed by transit, then the "Loss by transit A/c" is debited and "Purchases A/c" is credited. The goods destroyed by transit is considered to be loss for the business and is classified as a nominal account. Therefore, according to the rule of nominal account, all the expenses and losses are to be debited.

I don't think purchases should be credited because the closing inventory itself is netted with purchases in COS. Here is a scenario 1 where the normal balance is 7300 when everything else is the same. 

Sales     10000   PPE 4800
COS         inventory 700
purchases   2000   cash 800
closing inventory   700   bank 1000
loss on transit   0   assets 7300
gross profit   7300      
claim     0   capital & liabilities 7300
profit     7300      

 After the loss: Scenario 2

Sales     10000   PPE 4800
COS         inventory 700
purchases   2000   cash 800
closing inventory   700   bank 1000
loss on transit   200   assets 7300
gross profit   7100      
claim     0   capital & liabilities 7100
profit     7100      

Finally after the claim: Scenario 3

 

Sales     10000   PPE 4800
COS         inventory 700
purchases   2000   cash 800
closing inventory   700   bank 1000
loss on transit   200   assets 7300
gross profit   7100      
claim     200   capital & liabilities 7300
profit     7300      

The above compensated the loss and brought the balance back to normal. When it comes to sales return, bank balance is reduced.

Sales     9800   PPE 4800
COS         inventory 700
purchases   2000   cash 800
closing inventory   700   bank 800
loss on transit   200   assets 7100
gross profit   6900      
claim     200   capital & liabilities 7100
profit     7100      

 

 


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