PRC-1 · Chapter 7 · Question 5 of 100
An entity suffered a loss of stock worth Rs. 80,000. It recovered 70% of the value in cash from its insurance company. Under a perpetual inventory system, what is the correct double entry?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Debit Cash Rs. 56,000; Debit Abnormal Loss Rs. 24,000; Credit Inventory Rs. 80,000
Explanation
The total inventory lost (Rs. 80,000) must be credited to the Inventory account (under a perpetual system). The cash received is Rs. 56,000 (70%), so Cash is debited. The unrecovered portion is a loss of Rs. 24,000, which is debited to Abnormal Loss.
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