Fixed Assets Destroyed by Fire Journal Entry

Fixed assets are tangible assets that a company uses to support business operations. These assets are not easily converted into cash, and they typically have a long useful life. Examples of fixed assets include land, buildings, machinery, equipment, and vehicles. Fixed assets are sometimes called capital assets or property, plant, and equipment (PP&E).

Companies use fixed assets to generate revenue to support the business. The manufacturing company may use factory machinery to produce products that it can sell to customers. A retail company may use store fixtures and trucks to sell goods to consumers. Over time, the value of fixed assets can depreciate, which means they are worth less than their original purchase price. Nevertheless, fixed assets continue to play an essential role in many businesses.

In the event of a fire, fixed assets are often one of the first things to be destroyed. This is because they are typically located in high-risk areas such as kitchens and offices. Additionally, fixed assets are often made of inflammable materials such as wood and paper. As a result, they can quickly catch fire and spread the flames to other parts of the building. In some cases, the heat from a fire can also damage or destroy electronic components which are also part of the fixed assets.

For these reasons, it is important to have a fire safety plan that includes measures for protecting fixed assets. This may include installing fire sprinklers and alarm systems, using fire-resistant materials, and storing critical assets in fire-proof safes. By taking these precautions, business owners can help to ensure that their fixed assets are protected in the event of fire.

Journal Entry for Fixed Assets Destroy by Fire

Fixed assets are the physical assets that record on the balance sheet. The company expects to generate economic inflow into the company.

If the fixed assets are destroyed, the company needs to remove them from the balance sheet. The fixed assets account consists of both cost and accumulated, so we have to remove both accounts from the balance sheet.

If the cost of the fixed assets is bigger than the accumulated depreciation, it will have a net book value. The net book value will be written off to the income statement.

The journal entry is debiting accumulated depreciation and credit costs.

The entry will record the fixed assets written off as the expense on the income statement. The cost and accumulated depreciation will be removed from the balance sheet.

Example

Company ABC purchased the car cost $ 30,000 and it is expected to use for 3 years. The company has used and depreciated the car over 3 years period. At the end of 2nd year, a fire destroyed the car. Please prepare the journal entry for the fixed assets to destroy by fire.

The car depreciates $ 10,000 ($ 30,000/3 years) per year. So at the end of 2nd year, the accumulated depreciation is $ 20,000.

The net book value = $ 30,000 – $ 20,000 = $ 10,000.

The journal entry is debiting Fixed assets write off $ 10,000, accumulated depreciation $ 20,000, and credit cost of fixed assets $ 20,000.