Explain the accounting procedure for ascertaining the loss of stock by fire

>> February 15, 2009





For getting the amount of loss of stock from insurance company, it is very essential to ascertain the value of loss of stock by fire . Here , I am giving full procedure of it and it is duty of accountant to follow what I directed .

Calculation the value of stock lost due to fire

Statement Form – Ist way

Particular Amount
Stock in the beginning of the year xxxx
Add : purchase from the beginning of accounting
Year to the date of fire (+) xxxx
------------------------------------------------------------------
XXXX
Less : cost of goods sold from the beginning of
Accounting year to the date of fire (-) XXXX
-----------------------------------------------------------------
Value of stock on the date of fire XXXXX
Less : Stock of Salvaged or saved from fire (-) XXXX
-----------------------------------------------------------------
Value of stock lost due to fire XXXXX
----------------------------------------------------------------

Or

You can make memorandum trading accounting - 2nd Way

“Memorandum trading account is not part of final account but it is just part of working notes for calculating the net value of stock due to fire.”

Remembering pin -point

1. From both above two methods we must need to calculate gross profit rate. There are following way to calculate gross profit of business. There are following way to calculate gross profit of business
i) Average of old year gross profit method
ii) Previous gross profit method

G.P. Rate = Previous year Gross profit / Sale of previous year X 100

2. Average Clause

“ Average clause means insurance company will pay only insurance in the proportion of actual loss . Before this rule businessman used to take insurance policy below the actual amount of his asset. So , Now under this method his claim will be reduced . "

Formula of Calculating of Claim of loss of stock =

Amount of policy X stock destroyed
----------------------------------------------
Stock on the date of fire



Suppose, xyz Co. got the insurance policy of $ 10000 but his stock value is $ 20000 and actual loss is $ 5000. Now we will calculate claim under average clause

Claim accept = 5000 X 10000/ 20000 = $2500



3. Some time, information of opening stock , purchase and sale is not give by businessmen , so calculating correct value of loss due to fire it is very necessary to make total debtor account , total creditor account and previous year trading account .

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