There are certain types of disasters that can wreak havoc to your company. Instances of fire breakouts, flooding, hurricane, and other natural disasters could destroy your inventory, as well as inflict damage to your property as well.
In case such as the ones mentioned above, you should know that there are some accounting principles that you can use to help you get by. If you do not know what they are, you might ask for accounting consultancy services in Malaysia to help you get through the rough times.
In this article, I will talk about some accounting steps that will help you in times of company disasters.
Accounting for Property Damage
You cannot control natural disasters and if a fire breaks out in your company premises, even during the best of circumstances, it can still leave some damage to your property.
If this is the case and there is substantial damage to your property that would lead to a significant decrease in the property’s market value, then you are required to take an impairment loss. In addition, you are also required the reduce any assets’ value that was damaged on your balance sheet.
Your insurance can probably cover some of the costs if there is property damage due to natural disasters, but it may not cover everything. If that is the case, whenever you file your taxes, you can also claim a deduction for any decline in asset’s value due to natural disasters as well, should your insurance company not reimburse you.
Accounting for Inventory Losses
Whenever some of your goods may have been damaged because of a natural disaster, it is good accounting practice to take a manual count of your inventory.
Even if the items are already not fit for consumption or sale, it is still a good practice to document each and every one as part of your losses due to natural disaster rather than claiming that they have been lost due to some other means before the disaster happened.
Of course, you may be required to update your company’s balance sheet to reflect the current value of your existing inventory. When you prepare your financial statements, you can include inventory losses and treat them as part of the company’s expense. The same can be done when you are filing for your taxes.
If the damage to your property is so severe that you just have to close down your business, then you must carefully review your country’s laws, as well as your local ordinances, regarding employment agreements to help determine whether you are obliged to pay your employees or not.
Who Must Be Paid
If we are talking about US Laws, the Fair Labor Standards Act or FLSA may require you to pay all of your salaried and exempt employees during a temporary closing of your business. In such circumstance, you are required to pay your employees based on their paid leave rates.
Extending Tax Deadlines
When your company was struck and destroyed due to natural disasters, the IRS can then extend your tax deadlines. For income tax returns, the extension could be several weeks or months and for payroll tax deposits, it could just be a few days after.