Loss of Assets from Fire at factory

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student

54 Points Joined January 2008

Hi,

I have a query regarding loss of assets from fire at factory.

Fire incident occurred causing loss of Furnace in a factory and it is almost full loss.
Insurance claim received is lesser than WDV value.
how to book insurance receipts and loss of assets in book.

For Eg:
Assets Gross Value- INR 10,00,000
Accumulated Dep-INR 3,00,000
WDV-INR 7,00,000
Insurance claim received- 200,000

Should entry be like following :

	DR	CR
Insurance Receivable	₹200,000.00
Acc Dep A/c	₹300,000.00
Loss of Assets from Fire	₹500,000.00
Assets		₹1,000,000.00

2nd- How loss of Assets from Fire will be shown in PNL? As extraordinary Item?

Please guide me.

Thanks in Advance

Replies (16)

sabyasachi mukherjee

27912 Points Joined May 2017

Loss of assets to be shown in pl

MPR Sanjay Kumar

3145 Points Joined November 2020

Yes, the entry should be recorded as follows:

Insurance Receivable Rs. 200,000
Accumulated Depreciation Rs. 300,000
Loss of Assets from Fire Rs. 500,000
To record the insurance claim received and loss of assets in the books.

The loss of assets from fire should be shown in the profit and loss statement as an extraordinary item, separately from the usual operating expenses. This will help in clearly identifying the impact of the fire incident on the financial performance of the company.

prasad Nilugal

GST Practitioner & Accounts

14941 Points Joined March 2014

I think he has to recognise WDV of Asset for booking entry purpose and same will be Rs 7 lacs - so his loss in p&L A/c as extraordinary item will be 2 lacs and not 5 Lacs, Just confirm.

sabyasachi mukherjee

27912 Points Joined May 2017

Abnormal liss by way of disclosure in profit and loss statement

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student

54 Points Joined January 2008

Thanks for the response.

Other entry suggested is

1) Loss of Assets 700,000 DR (PNL Extraordinary Item)
Acc Dep 300,000 DR
Assets 10,00,000 CR

2). Bank A/c DR 500,000
Insurance receipts 500,000 cr. (Other Income)

So, what should be correct entry from accounting point of view.
please help.

prasad Nilugal

GST Practitioner & Accounts

14941 Points Joined March 2014

Please correct my earlier reply , WDV of an asset on the date fire in factory was 7 Lacs , so you Can pass following entries.

Loss of Asset A/c Dr 700000 ( P&L)
To Asset. A/c Cr 700000
( lost in fire )

Insurance Company A/c Dr 200000
To Insurance Claim A/c Cr 200000 (P&L- income)
( claim receivable)

Bank A/c Dr 200000
To Insurance Company 200000
( claim received )

Take more Opinion on this query

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student

54 Points Joined January 2008

Thanks everyone for reply. But I am still confused, Loss of assets will be 7L or 2L?. this will impact PNL presentation also.
And I want to understand how will it affect Taxation.
Please help me understand.

prasad Nilugal

GST Practitioner & Accounts

14941 Points Joined March 2014

Take a Opinion of your Company CA as well.

Mudassar Nath

Manager

51 Points Joined May 2023

Dear Friend,

In my opinion, the loss to be recognized in P&L should be Rs 5L.

In case, Insurance claim is more than WDV, then exces amount should be recognized as other income (taxable as Capital gain).

From layman perspective, I would say I had lost Rs 5L due to fire (WDV net of Insurance claim).

Let's take another example:

A person took a loan from bank and he died before he settles his loan. However, bank has insurance coverage for deceased.

In this scenario, the bank will consider this Insurance receipt as recovery of loan and not income.

CA. Dashrath Maheshwari

TaXpert

15116 Points Joined September 2007

Please see below entries:

Amount in ₹ Lakhs

Particulars	Dr	Cr
Asset A/c		10
Acc. Dep.	3
Insurance Claim Receivable		7


Insurance Claim Receivable	7
Loss of Asset due to Fire		2
Bank Account		5

prasad Nilugal

GST Practitioner & Accounts

14941 Points Joined March 2014

Sir , in first entry Dr & Cr are not tally , also his company received 2 Lac as insurance claim. as per the query.

Mudassar Nath

Manager

51 Points Joined May 2023

Below are the accounting entries:-

Dr. Bank A/c Rs. 2,00,000

Cr. Fixed Assets A/c Rs. 10,00,000

Dr. Accumulated Depreciatiilon Rs. 3,00,000

Dr. Loss from Assets (write-off) Rs. 5,00,000

prasad Nilugal

GST Practitioner & Accounts

14941 Points Joined March 2014

Mr M Nath ,
why you considering historical cost of an Asset 10 Lacs ? on the date of fire , WDV of an Asset was 7Lacs . ( 3 Lac depreciation we already considered in the books of accounts. ) ,also Claim we have to show separately.

Mudassar Nath

Manager

51 Points Joined May 2023

Dear Mr. Prasad,

At the time of disposal of fixed assets, reversal entry is required to nullify the GL balance. WDV is not an accounting GL. Its only depicting the difference between DR & CR at grouping level. Therefore accounting is required for 2 GLS as follows:

GL 1 : Gross book value

GL 2 : Accumuated depreciation

Presentation level in Balance sheet is net off GL 1 and 2 (i.e. wdv)

Both above GL is on Balance Sheet side.