Record stock lost through damage or theft by removing the supported inventory value and recognising the appropriate loss. First distinguish goods that are gone or unusable from goods that can still be sold at a reduced value. Assess related GST-credit consequences and insurance recoveries separately rather than netting every expected amount into one stock adjustment.
Establish quantity, condition and ownership
Prepare an incident record with item codes, quantities, location, discovery date and evidence. A physical shortage can arise from theft, an unrecorded sale, a receiving error or a stock-count mistake. Investigate before selecting the loss account.
For damaged goods, obtain an inspection report describing what can be repaired, sold as seconds or recovered as scrap. Goods in another warehouse or with a transporter may still exist and belong to the business; being absent from one location is not proof of loss.
Use the inventory system’s supported cost, not the retail price or an employee’s estimate of replacement cost. Keep the stock-count adjustment linked to the accounting voucher.
Illustrative complete stock loss
A Siliguri distributor identifies twenty units stolen from its warehouse. Their supported carrying cost is ₹600 each, giving a total of ₹12,000. Assume the investigation supports removal and no insurance asset has yet qualified for recognition.
| Account | Debit ₹ | Credit ₹ |
|---|---|---|
| Inventory loss: theft | 12,000 | — |
| Inventory | — | 12,000 |
| Total | 12,000 | 12,000 |
The entry removes both the quantity and value of stock that no longer exists. It does not record a sale, customer receivable or bank payment. Expected selling margin is not an additional loss in this simple cost-removal entry.
Under a periodic inventory system, coordinate the adjustment with the closing-stock and cost-of-goods-sold process. Do not separately charge the same loss twice through overlapping inventory procedures.
Damaged stock may retain value
ICAI AS 2 measures inventories at the lower of cost and net realisable value where the standard applies. A partially damaged item can therefore require a write-down rather than complete removal.
For example, illustrative goods costing ₹8,000 can now be sold for ₹5,500 after ₹500 of necessary completion and selling costs. Supported net realisable value is ₹5,000, indicating a ₹3,000 write-down under those assumptions.
The quantity may remain on hand while its value falls. Keep saleable, damaged and scrap categories identifiable so the warehouse does not offer impaired goods as ordinary stock.
Review input GST independently
Section 17(5)(h) of the CGST Act restricts credit in respect of goods lost, stolen, destroyed, written off or disposed of as gifts or free samples. Review the exact event, original credit and applicable treatment rather than assuming the accounting loss resolves GST.
Suppose a separate supported tax working requires an illustrative ₹2,160 credit reversal for the stolen goods. Debit the appropriate stock-loss or ineligible-tax cost ₹2,160 and credit the relevant GST reversal control ₹2,160, using accounts consistent with what was recorded and reported earlier.
The journal must connect to the actual return or payment process. Crediting a tax ledger alone does not complete that process. Do not use a generic percentage of retail value as the reversal calculation.
Insurance recovery is another economic event
Submitting a claim for ₹15,000 does not automatically justify recognising a ₹15,000 receivable. Assess the policy, insurer acceptance and applicable recognition requirements for the recovery.
AS 29 addresses contingent assets and recognition when the relevant uncertainty has been resolved to the required level. Keep the claim assessment distinct from the supported inventory loss. An optimistic claim should not conceal that stock has already been lost.
When an insurance receivable is properly recognised, record it through the appropriate recovery account and later clear it on receipt. If the insurer pays less, explain the difference using the settlement evidence rather than altering the original missing-stock quantity.
Scrapping and disposal need evidence
For goods destroyed after inspection, retain authorisation, quantities, disposal method and third-party evidence where available. If scrap is sold, record its actual proceeds and applicable tax treatment separately.
Do not remove stock at full cost twice: once when it is written down and again when it is later disposed of without considering the remaining carrying amount. The stock record should show the value immediately before final removal.
A supplier compensation claim may also exist where damage arose from defective goods. Document whether the supplier accepted a return or owes compensation; those outcomes can require different records.
Check reporting and responsibility
Assign an incident reference across the warehouse report, loss journal, tax working and insurance correspondence. Review whether the loss is abnormal or part of an established production-cost process under the applicable accounting policy.
An unexpected shortage should not be hidden in ordinary purchases simply to preserve the gross-margin percentage. Clear classification helps management see the problem and investigate its cause.
Reconcile the adjusted inventory ledger with the physical count and item schedule. Confirm that no customer invoice or transfer already explains the missing quantity.
Keep employee recovery claims separate
If investigation suggests an employee may be responsible for a loss, do not automatically replace missing inventory with an employee receivable. Establish the supported right to recovery and assess recognition under the applicable framework.
An allegation and a final accepted recovery arrangement are different stages. Record the inventory loss on its own evidence, then account for any properly supported recovery separately. This preserves both the financial loss and the actual status of the claim.
The completed accounting should show what was lost, its supported value, any required tax effect and separately supported recovery. Keeping those elements distinct makes the loss understandable and prevents expected compensation from overstating the remaining assets.