If insured equipment is destroyed in a fire: how are the write-off and the insurance payout recorded?

When materials in a warehouse are damaged, the entries revolve around one account. When a fixed asset is completely destroyed, however, the work splits into three stages: writing off the item, determining the loss and recording the insurance payout. These three stages must not be mixed up.

Key points

• The loss and the payout are recorded separately. The carrying amount of the burned equipment is one amount, and the payout made by the insurer is another. In the standard's tables they are given as separate entries: one goes to expense (9430), the other to income (9390).
• The write-off passes through 9210. The original cost of the item is taken to the debit of 9210, and accumulated depreciation to the credit of 9210 (NAS No. 21, paragraph 394, lines 1 and 2).
• Usable parts left after the fire are taken into stock. They are recorded as materials at the value at which they can be sold or used and credited to 9210 (paragraph 392; paragraph 394, line 14).
• The remaining carrying amount goes to 5910 as a loss. In cases of loss NAS No. 21 shows that the carrying amount is written off from the credit of 9210 in correspondence with 5910 (paragraph 392; paragraph 249, line 2).
• If no guilty party is identified, the loss is taken to 9430 (paragraph 249, line 4). If a guilty party is identified, the amount becomes a receivable to be recovered from them (paragraph 249, line 3).
• The payout is other operating income. For payments received from an insurance company under property insurance the standard gives the entry 4510 / 9390 (paragraph 405, line 12).
• The entry when the money arrives in the bank account, and the moment the payout is recognised (when the insurer confirms in writing or when the money arrives), are not given as separate lines in the standard's tables. Set this in your accounting policy.
• The tables are given as "may be an example". They are a reference point, but the approach chosen must be recorded in the accounting policy.

Example

At the "Zarafshon Qadoq" workshop a packaging machine (0130) was destroyed in a fire. No guilty party was identified, and the machine was insured. Amounts are hypothetical, in million soum.

9210 is closed: debit 120 = credit 48 + 3 + 69. Effect on the financial result: expense 69, income 60, net loss 9 million soum. The reason for the difference lies in the policy terms (the basis for calculating the payout, the deductible), so read them before a loss occurs.