Accounting policy for treatment of stock /fixed asset loss or damages

1. Accounting procedure for FG – Packed / Bulk cement damage

On event of inventory damage due to fire, flood, etc., reduce the inventoryvalue to
the extent of cost of the good lost by debiting Stock Loss account & crediting
Inventory account .On claim being preferred with the insurance company , the
accounting entry is passed debiting to claim receivable account (Cost of the goods
lost less salvage and policy excess) .

The difference between the Claim preferred & claim settled by the Insurance
company, need to be recovered from the C & F agent as per the agreement with
C&F agent (Claim preferred ,less Claim received, Less Salvage retrieved). If the
difference can not be recovered from C&F agent, then shall be accounted as Loss on
Insurance Claim.

Damage can happen at branch level for the following reasons:

a. Standardizations loss of cut & torn, clotted bags

These damages needs to be accounted on approval being taken by the head of RMO
and DM based on LOA. Damages arising out of fire, flood, etc., are subject to
insurance claim. This needs to be properly accounted and the following procedure
needs to be adhered to:

Entry to be passed at respective RMOs

I. At the time of accounting shortages with due approval T-code: MB1A

Movement type: 201
Debit : Stock loss – Damages (New GL) xxxx
XXXXMO4190
Credit : Inventory xxxx

Entries to be passed at Corporate Office

II. At the time of claiming insurance

Debit : 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

Credit : Insurance Claim a/c. (New GL, Income)
xxxx

III. At the time of receiving the claim

Debit : Bank a/c. xxxx

Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx
 IV. At the time of short receipt of insurance claim

Debit: C&F agent/Loss on Insurance Claim (New GL, Expn) XXXX SH4190
Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx

V. In case of Salvage value recovered

Debit :Inventory A/c
Credit: Stock Loss – Damaged (New GL)

2. Accounting procedure for Damages of raw materials, coal in plant

Damages of raw materials can happen due to following reasons:

a. Damages due to Fire, flood, accident, etc.,

Damages arising out of fire, flood ,etc., are subject to insurance claim. This needs
to be properly accounted and the following procedure needs to be adhered to:

I. At the time of accounting shortages/ damages with due approval

T-code: MB1A
Movement type: 201
Cost Center : respective expenditure cost center **
Debit : Stock loss – Damages/Shortages (New GL) xxxx
( cost object **)
Credit : Inventory xxxx

Entries to be passed at respective plants

II. At the time of claiming insurance

Debit : 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

Credit : Insurance Claim a/c. (New GL, Income) xxxx

III. At the time of any receiving the claim

Debit : Bank a/c. xxxx

Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx
 IV. At the time of short receipt of insurance claim

Debit: Loss on Insurance Claim (New GL, Expn) xxxx

( cost object **)
Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx

3. Accounting procedure for shortages/damages of spares (not

identifiable in FA register)

On event of machinery breakdown / damage, cost of repair/replacement to be

debited to repairs account. No accounting treatment is required in FA register. No
requirement of CENVAT reversal as the spare is not removed in as such condition.

Replacement of spares covered under insurance claims need to be accounted by

adopting the following procedure – Entries to be passed at respective plants

1. At the time of accounting the consumption of spares

T-code: MIGO
Movement type: 201/261
Cost Center : respective expenditure cost center / Maintenance
order**

Debit: Stk/Var. account xxxx ( cost

object **)
Credit: Inventory a/c. xxxx

2. At the time of claiming insurance

Debit : 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

Credit : Insurance Claim a/c. (New GL, Income) xxxx

3. At the time of any receiving the claim

Debit : Bank a/c. xxxx

Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx

4. At the time of short receipt of insurance claim

 Debit: Loss on Insurance Claim (New GL, Expn) xxxx
( cost object **)
Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx

4. Accounting procedure for shortages/damages of fixed assets

(Identifiable in FA register)

On event of fixed asset damaged and identifiable in FA register, then the asset to
be removed from FA register and necessary entry to bepassed in financial books
Debiting Loss on Removal of fixed asset & Provision for Depreciation & Crediting the
Gross block of Asset removed . No requirement of CENVAT reversal as the asset is
notremoved in as such condition.

Fixed assets damaged due to Fire, Flood, Accident, etc., are covered under
insurance claims and need to be accounted by adopting the following procedure. If
the spare has damaged without putting in to use, the Cenvat credit taken at the
time of receipt needs to reverse.

I. At the time of accounting the replaced Fixed assets

Debit : Fixed Asset a/c. xxxx
Credit : Asset Under Construction a/c
xxxx

II. At the time of de-capitalizing the damaged Fixed assets

Debit : 7021500000- LOSS ON SALE /DAMAGE OF FIXED ASSETS

xxxx
(With relevant cost object)
Debit: Provision for Depreciation xxxx
Credit : Fixed Asset a/c.
xxxx

III. At the time of claiming insurance

 Debit : 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx
Credit : Insurance Claim a/c. (New GL, Income)
xxxx

IV. At the time of any receiving the claim

Debit : Bank a/c. xxxx

Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx

V. At the time of short receipt of insurance claim

Debit: Loss on Insurance Claim (New GL, Expn) xxxx

XXXXAO4200
Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx

VI. Entry to passed in order to nullify the impact of short / excess arising
due to booking of loss on sale /damage of FA on WDV basis

In case of Shortage
Debit: Insurance Claim a/c. (New GL, Income) xxxx
Credit: 7021500000- LOSS ON SALE /DAMAGE OF FIXED ASSETS
xxxx
(With relevant cost object)
In case of Excess (Reversal of the above entry to be passed)

In case of any materials damages before capitalization of final asset, it is suggested

to follow the scenario 2 i.e, accounting procedure for shortages/damages of
raw materials in plants

I. At the time of accounting shortages/ damages with due approval

T-code: MB1A
Movement type: 201
Cost Center : respective expenditure cost center **
Debit : Stock loss – Damages/Shortages (New GL) xxxx
( cost object **)
Credit : Asset under Construction a/c. xxxx

And other entries follow the same sequence as discussed above.

5. Accounting for shortages / damages for incoming materials received
under marine insurance policy

Items damaged / shortages which are covered under marine insurance

policy needs to be treated as under:

I. At the time of receiving the material

Debit: Inventory (With quantity invoiced)

Debit: Cenvat clearing a/c.(in case of as such removal)
Credit: Vendor

II. Accounting the shortage / damaged material

T-code: MIGO
Movement type: 201/261
Cost Center : respective expenditure cost center / Maintenance
order**

Debit : Stock loss – Damages/Shortages (New GL) xxxx

(cost object **)
 Credit: Cenvat payable a/c. (in case of as such removal)
xxxx
Credit : Inventory xxxx

III. At the time of claiming insurance

Debit : 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

Credit : Insurance Claim a/c. (New GL, Income) xxxx

IV. At the time of any receiving the claim

Debit : Bank a/c. xxxx

Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx

V. At the time of short receipt of insurance claim

Debit: Loss on Insurance Claim (New GL, Expn) xxxx (cost

object **)
Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE
xxxx