Treatment in Final accounts: (i) Loss of goods due to fire, the theft or accident is known as an abnormal loss of goods. If such goods were insured by the firm, then an insurance claim may be received in full or part from the insurance company. Effect of this adjustment on final accounts will be as follows :
(a) Cost of goods lost/destroyed is either deducted from purchases or shown on the credit side of Trading A/c.
(b) Net loss, i.e., gross loss less insurance claim accepted, if any, shall be shown on the debit side of profit and loss A/c.
(c) Insurance claim accepted will be shown on the assets side of the Balance Sheet.
As per GST : ITC will not be available for the goods destroyed by fire as per Sec 17(5) and Insurance claim is a auctionable claim and hence not a supply of goods or service as per Sch III of CGST Act.
As per Income tax Act: Receipts from insurance parties [Section 45(1A)]:- Where any person receives any money or other assets under any insurance from an insurer, then, any profits or gains arising from receipt of such money or other assets shall be treated as “Capital gains” and shall be deemed to be the income of such person.
As per section 32(iii) the amount received from insurance company towards the asset destroyed shall be deducted from opening WDV of the block as ‘moneys payable’ and depreciation allowance shall be calculated on the balance amount.
