What is the value of stock stolen by employee in factory?

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X Company took a fidelity insurance on group of employees. Goods are were removed from the godown in a fraudulent manner by one of the employee. What value( cost of good / sale value) shall be considered for insurance claim ? Please support with any link.


Asked October 27, 2016

1 Answer

Before accounting for the goods lost you first need to confirm that the goods have actually been stolen by doing a physical count then comparing this physical count to the account balance on the books.

To know how to prudently account for stolen goods that have been covered by insurance you will first need to know the nature of the stolen goods. It is important that you know whether these stolen goods are either:

  • Tangible fixed assets.
  • Inventory or stock.
  • Or they are cash or any other valuable asset.

Since you will be in no expectation for any future benefit from any of these assets then you will need to take them off your balance sheet. It is also advisable that if the loss is so big and material, then you should account for the loss separately in the income statement.

In your case the goods were stolen from the godown meaning that they fall in the category of inventory.

When accounting for the stolen goods you will be guided by the system used in your company whether it is periodic or it is perpetual. Under the first system you will only compute the inventory balance at the end of the period and you will only post a single entry for the closing stock. Under the second system you will be required to update the inventory regularly through the period of accounting. You will need to open two journals.

  • Debit: cost of goods sold.
  • Credit: inventory.
  • Debit: insurance compensation receivable.
  • Credit: insurance compensation.

The inventory that you will credit should in addition to purchases cost, production cost and cost of direct materials include all the other elements of cost which include cost of human resources, cost of transport, production overheads among other costs associated with the inventory.

Answered October 31, 2016 by VirtualMatt

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