Asset accounting is lost
The loss or abandonment of property, machinery and equipment may not be optional, i.e. it may be lost as a result of fire, theft or natural disasters (such as floods and earthquakes) or it may be handed over to the government and municipalities by law.
In the accounting of such events, all the amounts related to the lost assets should be removed from the accounting documents and the amount of profit or loss should be recognized.
For example, let’s assume that one of the buildings of Evin company, which is located on the highway, will be acquired by the government in exchange for receiving 1,400,000 rials (one million four hundred thousand rials). If the cost of the land is 400,000 Rials and the cost of the building is 1,600,000 Rials and its accumulated depreciation is 1,200,000 Rials, the transfer of the said asset is recorded in the book as follows:
Bank – debtor 1,400,000
Accumulated Depreciation – Debtor 1,200,000
Land – creditor 400,000
Building – Creditor 1,600,000
Profit from transfer – creditor 600,000
The profit or loss resulting from this unusual and non-continuous event is reflected as unexpected items in the profit and loss statement.
Now we examine the situation where the fixed asset is insured and is destroyed
However, the cost of its depreciation should be calculated from the beginning of the current financial year until the time of the accident and transferred to the relevant accounts; Then he made the necessary registrations due to the event created in the offices as follows:
1- Registration of asset removal
2- Registering the elimination of accumulated depreciation
3- Registering the book value to the account of the insurance company
4- Registration of receiving damages from the insurance company
5- Registering and closing accounts receivable from the insurance company and identifying the profit or loss of the accident.
Example:
On September 31, 1390, the machines of Sadra company were completely destroyed as a result of theft, the following additional information is available:
* The cost price of the machinery is 150,000 Rials and its accumulated depreciation is 45,000 Rials on September 31, 2019. Also, Sadra Company received an amount of 90,000 Rials from the insurance company to compensate the damage caused to the machinery.
Now, you must first record the set aside of the fixed asset in the books, and when the amount of damage is determined and received from the insurance company, we will recognize the profit or loss.
It should be noted that accounts receivable from insurance should be debited to the amount of the book value.
Accounts receivable – insurance (bad) 105,000
Accumulated asset depreciation (bad) 45,000
Machinery (enough) 150,000
When the damage amount is received from the insurance, the following record is made:
Bank (bad) 90000
Loss due to property theft (bad) 15,000
Accounts receivable – insurance (BS) 105,000
If the property is not insured, when the accident occurs, we will debit the amount of the book value of the property as a loss caused by the accident.