Question

How do you treat abnormal loss in Joint Venture Accounts

Answer 1

Dear Student,
The accounting treatment of abnormal losses can be categorised into the following situations depending on whether the goods lost are insured or not.
Case 1: When the goods lost are not insured
If the destroyed goods are not insured, then there is no need of passing any accounting entry. This is because in a Joint Venture Account, we debit all the goods purchased by the joint venture. The total purchases also include the goods that get destroyed. This will overstate the debit side.

Case 2: When the goods lost are insured
In this case, the joint venture can file a claim to the insurance company. It may be possible that the insurance company either accept the full claim amount or the partial amount. The amount of claim received will be shown on the credit side of Joint Venture Account.

Hope this answers your query.
Keep posting!!