Insurance Claim Calculation

CHAPTER – 8
INSURANCE
CLAIM
LEARNING OBJECTIVE
AFTER STUDYING THIS CHAPTER YOU WILL BE ABLE TO:

 UNDERSTAND THE MEANING OF INSURANCE CLAIM
 HOW TO CALCULATE CLAIM OF LOSS OF STOCK BY FIRE
 HOW TO CLALCULATE LOSS OF PROFIT DUE TO FIRE
INSURANCE CLAIM 8. 2
CLIAM FOR LOSS OF STOCK BY FIRE

QUESTION 1.
On 12th June, 2006 fire occurred in the premises of N.R. khan, a paper merchant. Most of the stocks
Were destroyed, cost of stock salvaged being ` 11,200. In addition, some stock was salvaged in
Damaged condition and its value in that condition was agreed at ` 10,500. From the books of account,
The following particulars were available,
1. His stock at the close of account on December 31, 2005 was valued at ` 83,500.
2. His purchase from 1-1-2006 to 12-6-2006 amounted to ` 1, 12,000 and his sales during that
period amounted to ` 1, 54,000.
On the basis of his accounts for the past three years it appears that he earns on an average a gross
profit of 30% of sales.
Khan has insured his stock for ` 60,000. Compute the amount of the claim.
ANS: ` 45154.
QUESTION 2.
A fire occurred in the premises of M/s Kailash & Co. on 30th September 2013. From the following
particulars relating to the period from 1st April 2013 to 30th September 2013, you are required to
ascertain the amount of claim to be filed with the Insurance Company for the loss of stock. The
company has taken an Insurance policy for ` 75,000 which is subject to average clause. The value of
goods salvaged was estimated at ` 27,000. The average rate of Gross Profit was 20% throughout the
period.
Particulars Amount in `
(i) Opening Stock 1,20,000
(ii) Purchases made 2,40,000
(iii) Wages paid (including wages for the installation of a machine ` 75,000
5,000)
(iv) Sales 3,10,000
(v) Goods taken by the proprietor (Sale Value) 25,000
(vi) Cost of goods sent to Consignee on 20th September 2013, lying 18,000
unsold with them
(vii) Free Samples distributed - Cost 2,500
Ans.
(i) Average rate of gross profit = 20%
Memorandum Trading A/c for the year ended on 30 th September 2013
Particulars ` Particulars `
To opening stock 1,20,000 By sales 3,10,000
To purchase 2,40,000 By cost of goods drawn (25000×80%) 20,000
To wages 70,000 By cost goods sent to consignee 18,000
To Gross profit (310000×20%) 62,000 Bt free samples 2,500
By closing stock (balancing figure) 1,41,500
4,92,000 4,92,000
CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Statement of loss by fire

Particulars `
Value of stock immediately before fire 1,41,500
Less: Salvage 27,000
Loss by fire 1,14,500
Claim = loss by fire × sum insured/ value of stock
= 1,14,500 × 75,000/1,41,500 60,689
QUESTION 3.
A fire occurred on 1st October, 2014 in the premises of Ram & Co. Ltd. From the following figures,
Calculate the amount of claim to be lodged with the insurance company for loss of stock:
`
st
Stock at cost on 1 January, 2013 90,000
Stock at cost on 1st January, 2014 70,000
Purchases during 2013 4,00,000
st th
Purchase from 1 January, 2014 to 30 Sept. 2014 6,00,000
Sales during 2013 6,00,000
st th
Sales from 1 January, 2014 to 30 Sept. 2014 8,80,000
You are informed that:
1. In 2014 the cost of purchases has risen by 20% above the levels prevailing in 2013.
2. In 2014 the selling prices have gone up by 10% over the levels prevailing in 2013.
3. Salvage Value is ` 5,000.
ANS: ` 7,000.
QUESTION 4.
A fire occurred on 15th September 2012 in the premises of Sen & Co. from the following figures;
calculate the amount of claim to be lodged with the insurance company for loss of stock.
Particulars Amount (`)
Stock at cost on 1.1.2011 40,000
Stock at cost on 1.1.2012 60,000
Purchases in 2011 80,000
Purchase from 1.1.2012 to 15.9.2012 1,76,000
Sales in 2011 1,20,000
Sales from 1.1.2012 to 15.9.2012 2,10,000
During the current year cost of purchase has risen by 10% above last years’ level. Selling prices have
gone up by 5%. Salvage value of stock after fire was ` 4,000.
Ans. Loss of Stock ` 1,28,000.

QUESTION 5.
A fire occurred in the premises of Agni on 25th August, 1997 when a large part of the stock was
Destroyed. Salvage was ` 15,000. Agni gives you the following information for the period January 1st
1997 to August 25th 1997:
(a) Purchases ` 85,000.
(b) Sales ` 90,000
(c) Goods costing ` 5,000 were taken by Agni for personal use.
(d) Cost price of stock in January 1st 1997 was ` 40,000.
Over the past few years, Agni has been selling goods at a consistent gross profit margin of 331/3%.
The insurance Policy was for ` 50,000. It included an average clause. Agni asks you to prepare a
statement of claim to be made on the insurance company.
Ans.
(i) Rate of gross profit = 331/3%
Memorandum Trading A/c for the year ended on 25th August 1997
To opening stock 40,000 By sales 90,000
To purchase 85,000 By cost of goods drawn 5,000
To Gross profit (90,000×331/3%) 30,000 By stock on the date of fire 60,000
(balancing figure)
1,55,000 1,55,000

Particulars `
Value of stock immediately before fire 60,000
Loss by fire 45,000
= 45,000 × 50,000/60,000 37,500
QUESTION 6.
On 30th June, 1996, accidental fire destroyed a major part of the stocks in the godown of Jay
Associates. Stocks costing ` 30,000 could be salvaged but not their stores ledgers. A fire insurance
Policy was in Force under which the sum insured was ` 3,50,000. From available records, the following
Information was retrieved:
(i) Total of sales invoices during the period April-June amounted to ` 30, 20,000. An analysis
showed that goods of the value of ` 3, 00,000 had been returned by the customers before
the date of the fire.
(ii) Opening stock on 1-4-96 was ` 2, 20,000 including stocks valued at NRV of ` 20,000 being
lower of cost and net realizable value which is subsequently realized.
(iii) Purchases between 1-4-96 and 30.6.96 were ` 21, 00,000.
(iv) Normal gross profit rate was 331/3% on sales.
(v) A sum of ` 30,000 were incurred by way of fire fighting expenses on the day of the fire.
Prepare a statement showing the insurance claim recoverable.
Ans.
(i) Rate of gross profit = 331/3%
Memorandum Trading A/c for the year ended on 30th June 1996
(2,20,000 – 20,000) (30,20,000 – 20,000 – 3,00,000)
To purchase 21,00,000 By stock on the date of fire 5,00,000
To Gross profit (27,00,000 × 331/3%) 9,00,000 (balancing figure)
32,00,000 32,00,000

Particulars `
Add: fire fighting expenses 30,000
Actual Loss 5,00,000
= 5,00,000 × 3,50,000/5,00,000 3,50,000
QUESTION 7.
The factory premises of Toy Company were engulfed in fire on 31st March 2012, as a result
of which a major part of stock burnt to ashes. The stock was covered by policy for `
1,00,000, subject to Average Clause.
The records at the office revealed the following information:
1. (a) The Company sold goods to dealers on one month credit at dealer’s price
which is catalogue price less 15%. A cash discount is allowed @ 5% for
immediate payment.
(b) The goods are also sold to agents at catalogue price less 10% against cash
payment.
(c) Goods are sent to branches at catalogue price.
(d) Catalogue price is cost + 100%.
2. The sale/despatch during the period up to date of fire is –
(a) Sale to Dealer ` 3,40,000 (without Cash Discount)
(b) Sale to Dealer ` 3,23,000 (Net of Cash Discount)
(c) Sale to Agent ` 90,000
(d) Despatch to branches ` 3,00,000.
3. Stock on 1.1.2012 was ` 2,50,000 at catalogue price. Purchases at cost from
1.1.2012 to 31st March, 2012 ` 6,25,000.
4. Salvaged Stock valued at ` 45,000.
Compute the amount of claim to be lodged.

Ans. Memorandum Trading A/c for the year ended on 31st March, 2012
To opening stock 1,25,000 By sales to dealers without cash discount 3,40,000
(2,50,000 x 100/200) By sales to dealers with cash discount 3,23,000
To purchase 6,25,000 By sale to agent 90,000
To Gross profit (Wn 1) 4,53,000 By Goods dispatched to Branch 3,00,000
By stock on the date of fire 1,50,000
(balancing figure)
12,03,000 12,03,000
Wn1 Calculation of G.P.
Particulars `
Gp on sale to dealer without cash discount (3,40,000 x 70/170) 1,40,000
Gp on sale to dealer to with cash discount (3,23,000 x 61.5/161.5) 1,23,000
Gp on sale to agent (90,000 x 80/180) 40,000
Gp on Goods sent to Branch (3,00,000 x 100/200) 1,50,000
Total GP 4,53,000

Particulars `
Claim = ACTUAL LOSS × sum insured/ value of stock
= 1,05,000 × 1,00,000/1,50,000 70,000
QUESTION 8.
A fire occurred in the premises of a timber merchant on the night on 31st December. 2012. Goods
worth ` 25,000 only could be salvaged. The following further information is available:
(i) The accounting year ends on 31st March every year.
(ii) The closing stock on 31st March 2012 was valued at ` 1,10,000. This was 10% above the
cost.
(iii) The purchases during the period from 1st April 2012 to 31st December 2012
accounted to ` 5,50,000 as per the purchase register. However, goods worth `
30,000 were received on 3rd January, 2013.
(iv) The sales during the period from 1st April 2012 to 31st December. 2012 amounted to `
6,45,000 and included goods sold on approval basis for which the period of approval was
not yet over on 31st December, 2012. The goods so sold on approval basis had been
invoiced at ` 30,000, which was 50% above the cost.
(v) On 30th December, 2012, goods worth ` 60,000 had been sent to a commission agent on
consignment basis.
(vi) The wages paid during the period from 1st April 2012 to 31st December, 2012 amounted to
` 40,000 and included ` 10,000 paid to workers engaged in construction work.
(vii) The amount spent on carriage inward during the period from 1st April, 2012 to 31st
December, 2012 was ` 25,000.
(viii) It was agreed to take the gross profit ratio as the weighted average of the gross profit ratios
of the preceding four years.
For this purpose, greater weight was to be given to later years, also, an item purchased in
July 2012 for ` 20,000 and sold in August 2012 at a loss of ` 5,000 was not be considered
separately.
(ix) The gross profit and sales of the preceding four years were:
Years Gross Profit Sales
2008 – 09 1,04,000 4,00,000
2009 – 10 90,000 4,50,000
2010 – 11 1,15,200 4,80,000
2011 - 12 1,42,800 5,10,000
(x) The merchant had obtained a policy of ` 1,00,000 to cover the loss of stock by fire and the
policy contained the average clause.
You are required to determine the amount of claim to be lodged with the insurance company for the
stock destroyed by fire.
Ans. Claim ` 80,000.
QUESTION 9.
Mr. X’s godown was destroyed by fire on 1.6.2012 when the goods in stock were insured for ` 60,000.
The following particulars are given:
Balance Sheet (Extract)
As at 31st December 2011
Liabilities Amount(`) Assets Amount(`)
Creditor for goods 20,000 Stock
(including goods held by agent ` 36,000
2,000)
Debtors 70,000
Transactions upto 31st May, 2012 include:
Particulars Amount(`) Particulars Amount(`)
Cash Received from Debtors Cash paid to Creditors 2,20,000
Bad Debt written off 3,40,000 Discount Received 1,000
Balance on 31.5.2012: 3,500
Debtors 70,000
Creditors 30,000
Additional information:
(i) Debtors on 31.5.2012 included an amount owing from the agent from sales to date `
4,000 less 10% commission and his expenses amounting to ` 100 on 31.5.2012 – the
agent still held the said goods valued at ` 3,600 (at selling price).

(ii) Sales (total) for the periods include ` 1,600 for goods which have the selling price
reduced by 50% and also ` 6,000 reduced by 25%.
(iii) The normal mark up is 50% on cost and except the above; all sales can be assumed to be
at the full selling price.
(iv) All the goods were destroyed and there was no salvage value of the goods.
Calculate the amount of claim.
QUESTION 10.
Mr. A prepares accounts on 30th September each year, but on 31st December, 2008 fire destroyed the
Greater part of his stock. Following information was collected from his book:
`
Stock as on 1.10.2008 29,700
Purchases from 1.10.2008 to 31.12.2008 75,000
Wages from 1.10.2008 to 31.12.2008 33,000
Sales from 1.10.2008 to 31.12.2008 1,40,000
The rate of gross profit is 33.33% on cost. Stock to the value of ` 3,000 was salvaged. Insurance policy
was for ` 25,000 and claim was subject to average clause.
Additional information:
(i) Stock in the beginning was calculated at 10% less than cost.
(ii) A plant was installed by firm’s own worker. He was paid ` 500, which was included in
wages.
(iii) Purchases include the purchase of the plant for ` 5,000
You are required to calculate the claim for the loss of stock.
ANS: `22,541.
QUESTION 11.
On 20th July, 1991, the go down and business premises of a merchant were affected by fire and from
Accounting records saved, the following information is made available to you:
`
Stock of goods at cost on 1st April, 1990 1, 00,000
Stock of goods at 10% lower than cost as on 31st March, 1991 1, 08,000
st
Purchase of goods for the year from 1 April, 1990
To 31st March, 1991 4, 20,000
Sales for the same period 6, 00,000
st
Purchases less returns for the period from 1 April, 1991
To 20th July, 1991 1, 40,000
Sales less returns for the above period 3, 10,000
Sales up to 20 July 1991 included ` 40,000 for which goods had not been dispatched. Purchases up to
th
20th July, 1991 did not include ` 20,000 for which purchase invoices had not been received from
Suppliers, though goods have been received at the go down.
Good salvaged from the accident were worth ` 12,000 and these were handed over to the insured.
Ascertain the value of the claim for loss of goods/stock which could be preferred on the insurer.

Ans. Memorandum Trading A/c for the year ended on 31st March, 1991
To Opening Stock 1,00,000 By Sales 6,00,000
To Purchase 4,20,000 By Closing Stock (1,08,000/90%) 1,20,000
To Gross Profit (B/F) 2,00,000
7,20,000 7,20,000
GP Ratio= (2,00,000/6,00,000) X 100= 33.33%
Memorandum Trading A/c from 01-04-1991 to 20-07-1991
To Opening Stock 1,20,000 By Sales (3,10,000 – 40,000) 2,70,000
To Purchase(1,40,000 + 20,000) 1,60,000 By Stock on the of fire (B/F) 1,00,000
To Gross Profit (2,70,000 x 1/3) 90,000
3,70,000 3,70,000

Particulars `
Actual Loss 88,000
Claim = Since policy amount is not given, Actual loss of stock will be Insurance Claim
QUESTION 12.
On 2.6.2007 the stock of Mr. White was destroyed by fire. However, following particulars were
Furnished from the records saved:
`
Stock at cost on 1.4.2006 1,35,000
Stock at 90% of cost on 31.3.2007 1,62,000
Purchases for the year ended 31.3.2007 6,45,000
Sales for the year ended 31.3.2007 9,00,000
Purchase from 1.4.2007 to 2.6.2007 2,25,000
Sales from 1.4.2007 to 2.6.2007 4,80,000
Sales up to 2.6.2007 include ` 75,000 being the goods not dispatched to the customers. The sales
Invoice price is ` 75,000.
Purchase up to 2.6.2007 includes machinery acquired for ` 15,000.
Purchase up to 2.6.2007 does not include goods worth ` 30,000 received from suppliers, but invoice
Not received up to the date of fire. These goods have remained in the godown at the time of fire.
Value of stock salvaged from fire ` 22,500 and this has been handed over to the insurance company.
The insurance policy is for ` 1, 20,000 and it is subject to average clause. Ascertain the amount of
Claim for loss of stock.
ANS: ` 1, 20,000

QUESTION 13.
On 11.11.2007 the premises of X Ltd. was destroyed by fire.
The following information made available: `
Stock as on 1.4.2006 3,75,000
Purchases from 1.4.2006 to 31.3.2007 5,20,000
Sales from 1.4.2006 to 31.3.2007 8,55,000
Stocks as on 31.3.2007 2,00,000
Purchase from 1.4.2007 to 11.11.2007 3,41,000
Sales from 1.4.2007 to 11.11.2007 4,35,500
In valuing the stock on 31.3.2007, due to damage 50% of the value of the stock which originally cost `
22,000 was written off.
In June, 2007 about 50% of this stock was sold for ` 5,500 and the balance of obsolete stock is
expected to realize the same price (i.e. 50% of the original cost)
The gross profit ratio is to be assumed as uniform in respect of other sales. Stock salvaged from fire
amounts to ` 11,500.
Compute the value of stock lost in fire.
Ans. Trading A/c for the year ended on 31-03-2007
To purchase By closing stock (2,00,000 – 11,000) 1,89,000
(5,20,000 – 22,000) 4,98,000
To Gross profit (B/f) 1,71,000
10,44,000 10,44,000
GP ratio = 1,71,000/8,55,000 X 100= 20%
Memorandum Trading A/c for the year ended on 11-11-2007
Particulars Normal Abnormal Particulars Normal Abnormal
To opening stock 1,89,000 22,000 By sales 4,30,000 5,500
To purchase 3,41,000 -- By Loss on Sale of Abnormal --
To Gross profit 86,000 stock 5,500
(4,30,000 x 20%) By Stock on the Date of Fire 1,86,000 11,000
(balancing figure)
6,16,000 22,000 6,16,000 22,000
Particulars `
Value of stock immediately before fire- Normal 1,86,000
Add: Realisable value of Abnormal Stock (11,000 X 50%) 5,500
Total Stock on the of Fire 1,91,500
Actual Loss (Insurance Claim) 1,80,000

QUESTION 14.
On 1st April, 2006 the stock of Shri GANESH was destroyed by fire but sufficient records were saved
From which following particulars were ascertained?
Stock at cost – 1st January, 2005 73,500
Stock at cost – 31st December, 2005 79,600
st
Purchases – year ended 31 December, 2005 3, 98,000
Sales – year ended 31st December, 2005 4, 87,000
Purchases – 1-1-2006 to 31-3-2006 1, 62,000
Sales – 1-1-2006 to 31-3-2006 2, 31,200
In valuing the stock for the Balance Sheet at 31 December, 2005 ` 2,300 had been written off on
st
certain stock which was a poor selling lien having the cost ` 6,900. A portion of these goods were sold
in March, 2006 at loss of ` 250 on original cost of ` 3,450. The remainder of this stock was now
estimated to be worth its original cost. Subject to the above exception, gross profit had remained at a
uniform rate throughout the year.
The value of stock salvaged was ` 5,800. The policy was for ` 50,000 and was subject to the average
clause. Work out the amount of the claim of loss by fire.
ANS: `45004
QUESTION 15.
A fire occurred in the premises of Sri. G. Vekatesh on 1.4.2013 and a considerable part of the stock was
destroyed. The stock salvaged was ` 2,80,000. Sri Venkatesh had taken a fire insurance policy for `
17,10,000/- to cover the loss of stock by fire. You are required to ascertain the insurance claim which
the company should claim from the insurance company for the loss of stock by fire. The following
particulars are available:
` `
Purchases for the year 2012 93,80,000 Stock on 1.1.12 14,40,000
Sales for the year 2012 1,16,00,000 Stock on 31.12.2012 24,20,000
Purchases from 1.1.13 to 1.4.13 18,20,000 Wages paid during 2012 10,00,000
Sales from 1.1.13-1.4.13 24,00,000 Wages paid 1.1.13-1.4.13 1,80,000
Sri Venkatesh had in June 2012 consigned goods worth ` 5,00,000, which unfortunately were lost in an
accident. Since there was no insurance cover taken, the loss had to be borne by him full.
Stocks at the end of each year for and till the end of calendar year 2011 had been valued at cost less
10%. From 2012, however there was a change in the valuation of closing stock which was ascertained
by adding 10% to its costs.
To opening stock (14,40,000/ 90%) 16,00,000 By sales 1,16,00,000
To purchase By closing stock 22,00,000
(93,80,000 – 5,00,000) 88,80,000 (24,20,000/110%)
To Wages 10,00,000
1,38,00,000 1,38,00,000
GP ratio = 23,20,000/1,16,00,00 X 100= 20%

Memorandum Trading A/c for the year ended on 1-01-2013 to 1-04-2013

To purchase 18,20,000 By Stock on the Date of Fire 22,80,000
To wages 1,80,000 (balancing figure)
To Gross profit 4,80,000
(24,00,000 x 20%)
46,80,000 46,80,000

Particulars `
Less: Salvage 2,80,000
Claim = Actual Loss × Sum insured/ value of stock on the date of fire
= 20,00,000 × 17,10,000/22,80,000= ` 15,00,000
QUESTION 16.
On 1.4.2013, Godown of Y Ltd was destroyed by fire. The records of the company revealed the
following particulars:
`
Stock on 1.1.2012 75,000
Stock on 31.12.2012 80,000
Purchases during 2012 3,10,000
Sales during 2012 4,00,000
Purchase from 1.1.2013 to the date of fire 75,000
Sales from 1.1.2013 to the date of fire 1,00,000
In valuing Closing Stock of 2012, ` 5,000 were written off whose cost was ` 4,800. Part of this
Stock was sold in 2013 at a loss of ` 400, original cost ` 2,400 and Remaining Stock is now expected to
be realised at cost. Stock salvaged was ` 5,000. The Godown
And the cost of which was fully insured.
Indicate from above amount of claim to be made against the insurance company.

To opening stock 75,000 By sales 4,00,000
To purchase By closing stock (80,000 + 200) 80,200
(3,10,000 – 4,800) 3,05,200
4,80,200 4,80,200
GP ratio = 1,00,000/4,00,000 X 100= 25%


To opening stock 80,200 4,800 By sales 98,000 2,000
To purchase 75,000 By Loss on Sale of Abnormal
To Gross profit 24,500 stock -- 400
(98,000 x 25%) By Stock on the Date of Fire 81,700 2,400
(balancing figure)
1,79,700 4,800 1,79,700 4,800
Particulars `
Value of stock immediately before fire- Normal 81,700
Add: Realisable value of Abnormal Stock at Cost 2,400
Total Stock on the of Fire 84,100
Less: Salvage 5,000
Actual Loss (Insurance Claim) 79,100
QUESTION 17.
On 30.09.2012 the stock of Harshvardhan was lost in a fire accident. From the available records the
following information is made available to you to enable you to prepare a statement of claim of the
insurer:
Particulars Amount(`) Particulars Amount(`)
Stock at cost on 1.4.2011 75,000 Sales less returns for the year
Stock at cost on 31.3.2012 1,04,000 ended 31.3.2012 6,30,000
Purchases less returns for the Purchase less returns up to
year ended 31.3.2012 5,07,500 30.09.2012 2,90,000
Sales less returns up to 30.09.2012 3,68,100
In valuing the stock on 31.03.2012 due to obsolescence 50% of the value of the stock which originally
cost ` 12,000 had been written-off. In May 2012, ¾th of these stocks had been sold at 90% of original
cost and it is now expected that the balance of the obsolete stock would also realize the same price,
subject to the above, G.P had remained uniform throughout stock to the value of ` 14,400 was
salvaged.
To opening stock 75,000 By sales 6,30,000
To purchase By closing stock (1,04,000 – 6,000) 98,000
(5,07,500 – 12,000) 4,95,500
7,28,000 7,28,000
GP ratio = (1,57,500/6,30,00) X 100= 25%


To opening stock 98,000 12,000 By sales 3,60,000 8,100
To purchase 2,90,000 By Loss on Sale of Abnormal
To Gross profit 90,000 stock -- 900
(3,60,000 x 25%) By Stock on the Date of Fire 1,18,000 3,000
(balancing figure)
4,78,000 12,000 4,78,000 12,000

Particulars `
Value of stock immediately before fire- Normal 1,18,000
Add: Realisable value of Abnormal Stock (3,000 x 90%) 2,700
Total Stock on the of Fire 1,20,700
Actual Loss (Insurance Claim) 1,06,300
QUESTION 18.
A fire occurred in the premises of M/s Fireprone Co. on 30th May 2012. From the following particulars,
relating to the period from 1.1.2012, you are required to ascertain the amount of claim to be filed with
the insurance company for the loss of stock.
Sl. No. Particulars `
1. Stock as per Balance Sheet as at 31st December, 2011 99,000
2. Purchases (including purchase of Machinery costing ` 30,000) 1,70,000
3. Wages (including wages for the installation of Machinery ` 3,000) 50,000
4. Sales (including goods sold on approval basis amounting to ` 49,500. 2,75,000
No confirmation has been received in respect of 2/3 of such goods sold on

5. approval basis.)
6. Sales value of goods drawn by partners 15,000
Cost of goods sent to consignee on 15th May 2013, lying unsold with them 16,500
7. Sales value of goods distributed as free samples 1,500
The average rate of gross profit had been 20% in the past. The selling price had been increased by 20%
with effect from 1.1.2012.
For valuing the stocks for the Balance Sheet as at 31st Dec. 2011, ` 1,000 had been written-off in
respect of a slow moving item, the cost of which was ` 5,000. A portion of those goods were sold at a
loss of ` 500 on the original cost of ` 2,500. The reminder of the stock was now estimated to be worth
the original cost.
Subject to the above exceptions, the gross profit had remained at a uniform rate throughout.
The value of goods salvaged was estimated at ` 25,000.
The concern had taken an insurance policy for ` 60,000 which was subject to the average clause.

QUESTION 19.
On the 27th July, 2016, a fire occurred in the godown of M/s. Vijay Exports and most of the stocks were
destroyed. However goods costing ` 5,000 could be salvaged. Their fire fighting expenses were
amounting to ` 1,300.
From the salvaged accounting records, the following information is available relating to the period
from 1.4.2016 to 27.7.2016:
Stock as per balance sheet as on 31.3.2016 ` 63,000
Purchase (including purchase of machinery costing ` 10,000) ` 2,92,000
Wages (Including wages paid for installation of Machinery ` 3,000) ` 53,000

Sales (including goods sold on approval basis amounting to ` 40,000). No approval has
been received in respect of 1/4th of the goods sold on approval ` 4,12,300
Cost of goods distributed as free sample. ` 2,000
Other information:
1. While valuing the stock on 31.3.2016, ` 1,000 had been written off in respect of
certain slow moving items costing ` 4,000. A portion of these goods were sold
in June, 2016 at a loss of ` 700 on original cost of ` 3,000. The remainder of
these stocks in now estimated to be worth its original cost.
2. Past record shows the normal gross profit rate is 20%.
3. The insurance company also admitted fire fighting expenses.
The company had taken the fire insurance policy of ` 55,000 with the average
clause.
4. Compute the amount of claim of stock destroyed by fire, to be lodged to the
Insurance Company.
Also prepare Memorandum Trading Account to be for the period 1.4.2016 to 27.7.2016
for normal and abnormal items. (Nov 2017 – 10 Marks)
Ans. Insurance Claim ` 51,770

CLAIM OF LOSS OF PROFIT DUE TO FIRE

QUESTION 20.
On account of a fire on 15th June, 2008 in the business house of a company, the working remained
Disturbed up to 15th December 2008 as a result of which it was not possible to affect any sales. The
Company had taken out an insurance policy with an average clause against consequential losses for `
1,40,000 and a period of 7 months has been agreed upon as indemnity period. An increased of 25%
was marked in the current year’s sales as compared to the last year. The company incurred an
additional Expenditure of ` 12,000 to make sales possible and made a saving of ` 2,000 in the insured
standing Charges.
`
th th
Actual sales from 15 June, 2008 to 15 Dec., 2008 70,000
th th
Sales from 15 June 2007 to 15 Dec. 2007 2,40,000
Net profit for last financial year 80,000
Insured standing charges for the last financial year 70,000
Total standing charges for the last financial year 1,20,000
Turnover for the last financial year 6,00,000
Turnover for one year; 16 June 2007 to 15 June 2008 5,60,000
Solution: Calculation of Short Sales
Particulars `
Standard Sales 2,40,000
+ Trend @25% 60,000
Revised Standard Sales 3,00,000
Less: Actual Sales in Indemnity Period 70,000
Short Sales 2,30,000
Calculation of GP Ratio
GP Ratio= Net Profit of Last Year + Insured Standing Charges X 100
Sales Of Last Year
80,000 + 70,000 X 100
6,00,000
= 25%
Calculation of Loss of Profit

Loss of Profit = Short Sales x GP Ratio
= 2,30,000 x 25% = ` 57,500
Calculation of Adjusted Annual Turnover (AAT)

Particulars `
Annual Turnover (AT) 5,60,000
+ Trend @ 25% 1,40,000
Adjusted Annual Turnover (AAT) 7,00,000

Calculation of GP on AAT
GP on AAT = Adjusted Annual Turnover (AAT) x GP Ratio
= 7,00,000 X 25% = ` 1,75,000
Calculation of Claim for Additional Expenses

Lower of following will be Claim for Additional Expenses:
(i) Actual Additional Expenses = 12,000
(ii) Actual Additional Expenses x GP on Annual Adjusted Turnover
GP on AAT + Uninsured Expenses
12,000 x 1,75,000
1,75,000 + 50,000 = ` 9,333
(iii) Reduction in Turnover Avoided(Additional sales due to Additional Expenses) X GP Ratio

70,000 X 25% = ` 17,500
Claim for Additional Expenses(Lower) = ` 9,333
Note: when Reduction in Turnover Avoided (Additional sales due to Additional Expenses) is not
given, then actual sales in indemnity period is taken
Calculation of Actual Loss

Particulars `
Loss of Profit 57,500
+ Claim for Additional Expenses 9,333
Total Loss 66,833
Less: Saving in insured standing expenses 2,000
Actual Loss 64,833
Calculation of Insurance Claim

Actual loss x Policy Amount
GP on AAT
Insurance Claim: 64,833 x 1,40,000/ 1,75,000 = ` 51,866
QUESTION 21.
A fire occurred on 1-2-1990 in the premises of Unfortunate Ltd. and business was partially disorganized
Up to 30.6.1990. From the books of accounts, the following information was extracted:
`
(i) Actual turnover from 1-2-90 to 30-6-90 75,000
(ii) Turnover from 1-2-89 to 30-6-89 2,10,000
(iii) Turnover from 1-2-89 to 31-1-90 4,50,000
(iv) Net profit for last financial year 70,000
(v) Insured standing charges for the last financial year 56,000
(vi) Total standing charges for the year 64,000
(vii) Turnover for the last financial year 4,20,000

The company incurred additional expenses amounting to ` 6,700 which reduced the loss in turnover.
There was also a saving during, the indemnity period of ` 2,450 in the insured standing charges as a
result of the fire.
The company holds a “Loss of Profit” Policy for ` 1, 24,200 having an indemnity of 6 months.
There has been a considerable increase in trade since the date of the last annual accounts and it had
been agreed that an adjustment of 15% be made in respect of the upward trend in turnover.
Particulars `
+ Trend @15% 31,500
Sales Of Last Year
70,000 + 56,000 X 100
4,20,000
= 30%
= 1,66,500 x 30% = ` 49,950
Particulars `
+ Trend @ 15% 67,500
= 5,17,500 X 30% = ` 1,55,250

6,700 x 1,55,250
1,55,250 + 8,000 = ` 6,372
75,000 X 30% = ` 22,500


Particulars `
Total Loss 56,322
Actual Loss 53,872

GP on AAT
QUESTION 22.
A fire occurred on 1st February, 2006, in the premises of Pioneer Ltd., a retail store and business was
Partially disorganized up to 30th June, 2006. The company was insured under a loss of profits for
` 1,25,000 with a six months period indemnity. From the following information, compute the amount
Of claim under the loss of profit policy.
`
Actual turnover from 1st February to 30th June 2006 80,000
Turnover from 1st February to 30 June, 2005 2, 00,000
st st
Turnover from 1 February, 2005 to 31 January, 2006 4, 50,000
Net profit for last financial year 70,000
Insulted standing charges for last financial year 56,000
Total standing charges for last financial year. 64,000
Turnover for the last financial year 4, 20,000
The company incurred additional expenses amounting to ` 6,700 which reduced the loss in
turnover. There was also a saving during the indemnity period of ` 2,450 in the insured
standing charges as a result of the fire.
There had been a considerable increase in trade since the date of the last annual accounts and
it has been agreed that an adjustment of 15% be made in respect of the upward trend in
turnover.
Particulars `
+ Trend @15% 30,000
Sales Of Last Year
70,000 + 56,000 X 100
4,20,000
= 30%


= 1,50,000 x 30% = ` 45,000

Particulars `
+ Trend @ 15% 67,500
= 5,17,500 X 30% = ` 1,55,250

6,700 x 1,55,250
1,55,250 + 8,000 = ` 6,372

80,000 X 30% = ` 24,000

Particulars `
Total Loss 51,372
Actual Loss 48,922

GP on AAT

QUESTION 23.
X Ltd, has insured itself under a loss of profit policy for ` 3,63,000. The indemnity period under the
Policy is six months. On 1st September, 1998 a fire occurred in the factory of X Ltd. and the normal
Business was affected up to 1st March, 1999.
The following information is compiled for the year ended on 31st March, 1998:
`
Sales 20,00,000
Insured standing charges 2,40,000
Uninsured standing charges 20,000
Net profit 1,20,000
Following further details of turnover are furnished:

(a) Turnover during the period of 12 months ending on the date of fire was ` 22,00,000;
(b) Turnover during the period of interruption was ` 2,25,000;
(c) Actual turnover during the period from 1.9.1997 to 1-3-1998 during the preceding year
corresponding to the indemnity period was ` 7,50,000;
X Ltd, spend an amount of ` 40,000 as additional cost of working during the indemnity period. On
Account of this additional expenditure:
(b) There was a saving of ` 15,000 in insured standing charges during the period of indemnity;
(c) Reduced turnover avoided was ` 1, 00,000 i.e., but for this expenditure, the turnover after
the date of fire would have been only ` 1, 25,000.
A special clause in the policy stipulates that owing to the reasons acceptable to the insurer under
special
Circumstances the following increases are to be made:
(a) Increase of turnover-standard and actual-by 10%.
(b) Increase in rate of gross profit by 2% from previous year’s level.
X Ltd. asks you to compute the claim for loss of profit. All calculations should be made to the nearest
Rupee.
ANS: `93750
QUESTION 24.
Sale of the last year ` 5,00,000
Net profit of last year ` 40,000
Insured Standing Charges ` 60,000
Sales during period of dislocation ` 20,000
Corresponding Sales in previous year ` 80,000
Annual Turnover ` 6,00,000
Additional Expenses ` 5,000
Total Standing Charges ` 90,000
Saving in uninsured standing charges ` 4,000
Policy amount ` 50,000


Particulars `
Standard Sales 80,000
+ Trend --
Revised Standard Sales 80,000
Short Sales 60,000
Sales Of Last Year
40,000 + 60,000 X 100
5,00,000
= 20%

= 60,000 x 20% = ` 12,000

Particulars `
+ Trend --
= 6,00,000 X 20% = ` 1,20,000

5,000 x 1,20,000
1,20,000 + 30,000 = ` 4,000

20,000 X 20% = ` 4,000


Particulars `
Total Loss 16,000
Less: Saving in insured standing expenses (Not given in Question) --
Actual Loss 16,000

GP on AAT
Insurance Claim: 16,000 x 50,000/ 1,20,000 = ` 6,667
QUESTION 25.
Sales: 1-1-2000 to 31-12-2000 ` 10,00,000
1-1-2001 to 30-06-2001 ` 6,00,000
1-7-2001 to 31-10-2001(affected period) ` 1,20,000
1-7-2000 to 31-10-2000 ` 4,00,000
1-1-2000 to 30-6-2000 ` 4,50,000
Additional expenses ` 10,000
Insured standing charges ` 20,000
Uninsured standing charges ` 30,000
Policy amount ` 2,00,000
Net profit of year 2000 ` 1,00,000
Decline in G.P. ratio due to increase costs 2%
Find out claim in fire occurred on 1-7-2001 till 31-10-2001
Calculate Claim.
ANS: `49496
QUESTION 26.
From the following details, calculate consequential loss claim:
1. Date of fire: 1st September following:
2. Indemnity period: 6 months;
3. Period of disruption : 1st September to 1st February;
4. Sum insured L ` 1,08,900
5. Sales were ` 6, 00,000 for preceding financial year ended on 31st March.
6. Net profit for preceding financial year ` 36,000 plus insured standing charges ` 72,000;
7. Rate of Gross profit 18%;
8. Uninsured standing charges ` 6,000;
9. Turnover during the disruption period ` 67,500;
10. Annual turnover of 12 months immediately preceding the date of fire ` 6,60,000;

11. Standard turnover i.e. for corresponding months (1st September to 1st February) in the year
preceding the date of fire ` 2,25,000;
12. increases in the cost of Working capital ` 12000 with a saving of insured standing charges `
4,500 during the disruption period;
13. Reduced turnover avoided through increase in Working capital ` 30,000;
14. Special clause stipulated:
(a) Increase in rate of G.P. 2%.
(b) Increase in turnover (Standard and Annual) 10%.
Particulars `
+ Trend @10% 22,500
Sales Of Last Year
36,000 + 72,000 X 100
6,00,000
= 18% + 2% (Trend)= 20%

= 1,80,000 x 20% = ` 36,000

Particulars `
+ Trend @ 10% 66,000
= 7,26,000 X 20% = ` 1,45,200
12,000 x 1,45,200
1,45,200 + 6,000 = ` 11,524
30,000 X 20% = ` 6,000


Particulars `
Total Loss 42,000
Actual Loss 37,500

GP on AAT
QUESTION 27.
The premises of XY Limited were partially destroyed by fire on 1st March, 2006 and as a result, the
Business was practically disorganized up to 31st August, 2006. The company is insured under a loss of
Profits policy for ` 1, 65,000 having an indemnity period of months.
From the following information, prepare a claim under the policy:
`
(i) Actual turnover during the period of dislocation 80,000
(1-3-2006 to 31-8-2006)
(ii) Turnover for the corresponding period (dislocation) in the
12 months immediately before the fire (1-3-2005 to 31-8-2005) 2,40,000
(iii) Turnover for the 12 months immediately preceding the fire
(1-3-2005 to 28-2-2006) 6,00,000
(iv) Net profit for the last financial year 90,000
(v) Insured standing charges for the last financial year 60,000
(vi) Uninsured standing charges 5,000
(vii) Turnover for the last financial year 5,00,000
Due to substantial increase in trade, before and up to the time of the fire, it was agreed that an
adjustment of 10% should be made in respect of the upward trend in turnover. The company incurred
additional expenses amounting to ` 9,300 immediately after the fire and but for this expenditure, the
turnover during the period of dislocation would have been only ` 55,000. There was also a saving
during the indemnity period of ` 2,700 in insured standing charges as a result of the fire.
Particulars `
+ Trend @10% 24,000

Sales Of Last Year
90,000 + 60,000 X 100
5,00,000
= 30%

= 1,84,000 x 30% = ` 55,200

Particulars `
+ Trend @ 10% 60,000
= 6,60,000 X 30% = ` 1,98,000

9,300 x 1,98,000
1,98,000 + 5,000 = ` 9,071

25,000 (80,000 – 55,000) X 30% = ` 7,500

Particulars `
Total Loss 62,500
Actual Loss 60,000


GP on AAT
QUESTION 28.
S and M Ltd. give the following Trading and Profit and Loss Account for year ended 31 st December,
2005;
Trading and Profit and Loss Account
For the year ended 31st December, 2005
` `
To Opening stock 50,000 By Sales 8, 00,000
To Purchases 3, 00,000 By Closing Stock 70,000
To wages (` 20,000 for skilled labour) 1, 60,000
To Manufacturing Expenses 1, 20,000
To Gross profit 2, 40,000
8, 70,000 8,70,000
To office Administrative Expenses 60,000 By Gross Profit 2, 40,000
To Advertising 20,000
To Selling Expenses (Fixed) 40,000
To commission on Sales 48,000
To Carriage Outward 16,000
To Net Profit 56,000
2,40,000 2,40,000
The company had taken out policies both against loss of stock and against loss of profit the amounts
being ` 80,000 and ` 1, 70,000. A fire occurred on 1st May, 2006 and as a result of which sales were
seriously affected for a period of 4 months. You are given the following further information:
(a) Purchases, wages and other manufacturing expenses for the first 4 months of 2006 were `
1, 00,000, ` 50,000 and ` 36,000 respectively.
(b) Sales for the same period were ` 2, 40,000.
(c) Other sales figures were as follows:
`
From 1st January 2005 to 30th April, 2005 3, 00,000
From 1st May 2005 to 31st August, 2005 3, 60,000
st st
From 1 May, 2006 to 31 August, 2006 60,000
(d) Due to rise in wages, gross profit during 2006 was expected to decline by 2% on sales.
(e) Additional expenses incurred during the period after fire amounted to ` 1, 40,000. The
amount of the policy included ` 1, 20,000 for expenses leaving ` 20,000 uncovered.
Ascertain the claim for stock and for loss of profit.
All workings should form part of your answers.
ANS: `80000 for stock, 57600 for profit

QUESTION 29.
Sony Ltd. trading and profit and loss account for the year ended 31 st December, 2005 were as follows:
Trading and Profit and Loss Account
For the year ended 31st December, 2005
` `
To Opening stock 20,000 By sales 10,00,000
To Purchases 6,50,000 By Closing Stock 90,000
To Manufacturing Expenses 1,70,000
To Gross profit 2,50,000
10,90,000 10,90,000
To Administrative Expenses 80,000 By Gross Profit 2, 50,000
To selling Expenses 20,000
To Finance Charges 1, 00,000
To Net profit 50,000
2,50,000 2,50,000
The company had taken out a fire policy for ` 3, 00,000 and a loss of profits policy for
` 1, 00,000 having an indemnity period of 6 months. A fire occurred on 1.4.2006 at the
premises and the entire stock was gutted with nil salvage value. The net quarter sales i.e.
1.4.2006 to 30.6.2006 were severely affected. The following are the other information:
`
Sales during the period 01.01.2006 to 31.03.2006 2,50,000
Purchase during the period 01.01.2006 to 31.03.2006 3,00,000
Manufacturing expenses 01.01.2006 to 31.03.2006 70,000
Sales during the period 01.04.2006 to 30.06.2006 87,500
Standing charges insured 50,000
Actual expense incurred after fire 60,000
The general trend of the industry shown in increase of sales by 15% and decrease in GP by 5% due to
increased cost.
Ascertain the claim for stock and loss profit.
ANS: `2,60,000 for stock, 15000 for profit
QUESTION 30.
Monalisa & Co. runs plastic goods shop. Following details are available from quarterly sales tax return
files.
Sales 2009 2010 2011 2012
` ` ` `
From 1st January to 31st March 1,80,000 1,70,000 2,05,950 1,62,000
st th
From 1 April to 30 June 1,28,000 1,86,000 1,93,000 2,21,000
st th
From 1 July to 30 September 1,53,000 2,10,000 2,31,000 1,75,000
From 1st October to 31st December 1,59,000 1,47,000 1,90,000 1,48,000
Total 6,20,000 7,13,000 8,19,950 7,06,000

Period `
Sales from 16-09-2011 to 30-09-2011 34,000
Sales from 16-09-2012 to 30-09-2012 Nil
Sales from 16-12-2011 to 31-12-2011 60,000
Sales from 16-12-2012 to 31-12-2012 20,000
A loss of profit policy was taken for `1,00,000. Fire occurred on 15 September, 2012. Indemnity
th
period was for 3 months. Net Profit was ` 1,20,000 and standing charges (all insured) amounted to
` 43,990 for year ending 20 11. Determine the Insurance Claim? (Nov. 2013)
QUESTION 31.
There was a serious fire in the premises of M/s ABC on 1.9.2012. Their business activities were
interrupted until 31st December, 2012, when normal trading conditions were re-established. M/s. ABC
are insured under the loss or profit policy for ` 42,000 the period of indemnity being six months. You
are able to ascertain the following information.
(i) The net profit for the year ended 31st December, 2011 was ` 20,000
(ii) The annual insurable standing charges amounted to ` 30,000, of which ` 2,000 were not
included in the definition of insured standing charges under the policy.
(iii) The additional cost of working in order to investigate the damage caused by the fire
amounted to ` 600 and but for the expenditure the business would have had to shut
down.
(iv) The savings in insured standing charges in consequence of the fire amounted to ` 1,500.
(v) The turnover for the period for four months ended April 30, August 31, December 31, in
each of the years 2011 and 2012 was as follows:
Year Amount Amount Amount
2011 65,000 80,000 95,000

2012 70,000 80,000 15,000
You are required to compute the relevant claim under the terms of the loss of profit policy.
Ans. Amount of Claim ` 12,922.
QUESTION 32.
Madhu & Co. effected a policy of insurance covering Loss of Profit and standing charges to the extent
of ` 5,00,000 (based upon previous year’s profit) plus an allowance of ` 1,00,000 for profit and
standing charges expected to accrue from increased turnover, the period of indemnity being 3 months.
The turnover for the previous year ended 31st March was ` 15,00,000 and for the ensuing year was
estimated at ` 18,00,000.
A fire occurred on 1st November. The following relative figures have been ascertained:
Months Sales – previous year Sales Budget – Actual Sales
` current year ` `
November 80,000 96,000 Nil
December 1,10,000 1,32,000 Nil
January 1,20,000 1,44,000 32,000

Upon investigation, you find that the increased sales for the past 7 months were over estimated by
50% and the ratio of expenses was consistent with such reduction. The additional expenses of carrying
on the business during partial disablement amounted to ` 7,000.
Prepare statement of claim against Insurance Company.
Ans. Amount of Claim ` 1,10,000.
QUESTION 33.
A Loss of Profit Policy was taken for ` 80,000. Fire occurred on 15th March 2012. Indemnity period was
for three months. Net profit for 2011 year ending on 31st December was ` 56,000 and standing
charges (all insured) amounted to ` 49,600. Determine insurance claims from the following details
available from quarterly sales tax returns:
Sales 2009 2010 2011 2012
` ` ` `
From 1st January to 31st March 1,20,000 1,30,000 1,42,000 1,30,000
From 1st April to 30th June 80,000 90,000 1,00,000 40,000
st th
From 1 July to 30 September 1,00,000 1,10,000 1,20,000 1,00,000
From 1st October to 31st December 1,36,000 1,50,000 1,66,000 1,60,000
Total
Sales from 16.03.2011 to 31.03.2011 were ` 28,000

,, ,, 16.03.2012 ,, 31.03.2012 ,, ` Nil
,, ,, 16.06.2011 ,, 31.06.2011 ,, ` 24,000 and
,, ,, 16.06.2012 ,, 31.06.2012 ,, ` 6,000
Ans. Amount of Claim ` 10,749 (approx).
QUESTION 34.
M/s Platinum Jeweller wants to take up a “Loss of Profit Policy” for the year 2015. The extract of the
Profit and Loss Account of the previous year ended 31-12-2014 provided below:
`
Variable Expenses
Cost of Materials 18,60,000
Fixed Expenses
Wages for skilled craftsmen 1,60,000
Salaries 2,80,000
Audit Fees 40,000
Rent 64,000
Bank Charges 18,000
Interest Income 44,000
Net Profit 6,72,000
Turnover is expected grow by 25% next year.
To meet the growing working capital needs the partners have decided to avail overdraft facilities form
their bankers @12% p.a. interest
The average daily overdraft balance will be around ` 2 lakhs.

The wages for the skilled craftsmen will increase by 20% and salaries by 10% in the current year. All
other expenses will remain the same.
Determine the amount of policy to be taken up for the current year by M/s Plantinum Jewelers.
Ans.
Profit and loss Accounts for the year ended 31-03-2014
To Variable Expenses (Material) 18,60,000 By Sales (Balancing Figure) 30,50,000
To Fixed Expenses 5,62,000 By Interest Income 44,000
To Net Profit 6,72,000
30,94,000 30,94,000
Statement Showing Amount of Loss of Profit Policy to be taken for Platinum Jewelers for 2015
Particulars `
Gross Profit (Sales ` 30,50,000 – Variable Expenses ` 18,60,000) 11,90,000
Add: Additional GP for 25% increase In Sales (11,90,000 X 25%) 2,97,500
Add: Additional Fixed Expenses:
- Interest on Bank Over Draft (2,00,000 X 12%) 24,000
- Increase in wages (1,60,000 X 20%) 32,000
- Increase in Salary (2,80,000 X 10%) 28,000
Amount of Loss of Profit Policy to be taken 15,71,500
QUESTION 35.
M/s Ram & Co. wants to take up a “Loss of Profit Policy” for the year 2015. The extract of the Profit
and Loss Account of the previous year ended 31-12-2014 provided below:
`
Variable Expenses
Cost of Materials 55,80,000
Fixed Expenses
Wages for skilled craftsmen 4,80,000
Salaries 8,40,000
Audit Fees 1,20,000
Rent 1,92,000
Bank Charges 54,000
Interest Income 1,32,000
Net Profit 20,16,000
Turnover is expected grow by 25% next year.
To meet the growing working capital needs the partners have decided to avail overdraft facilities form
their bankers @12% p.a. interest
The average daily overdraft balance will be around ` 6 lakhs.
The wages for the skilled craftsmen will increase by 20% and salaries by 10% in the current year. All
other expenses will remain the same.
Determine the amount of policy to be taken up for the current year by M/s Ram & Co.
Ans. Amount of Loss of Profit Policy to be taken ` 47,14,500
QUESTION 36.
A reader intends to take a loss of profit policy with indemnity period of 6 months, however, he could
not decide the policy amount. From the following details, suggest the policy amount:
Turnover in last financial year 6,75,000
Standing charges in the last financial year 1,14,750
Net profit earned in last year was 10% of turnover and the same trend expected in subsequent year.
Increase in turnover expected 30%. To achieve additional sales, trader has to incur additional
expenditure of ` 42,500. (Nov – 2015 -Marks 8)
Solution:
1. Profit and Loss Account for Previous Year
To Variable Expenses (balancing figure) 4,92,750 By Sales 6,75,000

To Standing Charges 1,14,750
To Net Profit
(10% on Sales) 67,500
Total 6,75,000 Total 6,75,000
2. Computation of Insurance Policy to be taken

Particulars `
Gross Profit (Sales ` 6,75,000 Less Variable Expenses ` 4,92,750) as per Previous Year 1,82,250
Add: Additional GP for 30% increase in Turnover (` 1,82,250 x 30%) 54,675
Add: Additional Expenditure to achieve Additional
Sales 42,500
Policy to be Taken for Current Year 2,79,425

Insurance Claim Calculation

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CHAPTER – 8

AFTER STUDYING THIS CHAPTER YOU WILL BE ABLE TO:

CLIAM FOR LOSS OF STOCK BY FIRE

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Statement of loss by fire

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Statement of loss by fire

Statement of loss by fire

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Statement of loss by fire

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Statement of loss by fire

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Memorandum Trading A/c for the year ended on 1-01-2013 to 1-04-2013

Statement of loss by fire

Ans. Trading A/c for the year ended on 31-03-2012

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Memorandum Trading A/c for the year ended on 01-01-13 to 01-04-2013

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Memorandum Trading A/c for the year ended on 01-01-13 to 01-04-2013

Statement of loss by fire

No confirmation has been received in respect of 2/3 of such goods sold on

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Purchase (including purchase of machinery costing ` 10,000) ` 2,92,000

Wages (Including wages paid for installation of Machinery ` 3,000) ` 53,000

Cost of goods distributed as free sample. ` 2,000

Ans. Insurance Claim ` 51,770

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

CLAIM OF LOSS OF PROFIT DUE TO FIRE

Calculation of Loss of Profit

Calculation of Adjusted Annual Turnover (AAT)

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Calculation of Claim for Additional Expenses

(iii) Reduction in Turnover Avoided(Additional sales due to Additional Expenses) X GP Ratio

Calculation of Actual Loss

Calculation of Insurance Claim

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Calculation of Claim for Additional Expenses

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Calculation of Actual Loss

Calculation of Insurance Claim

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Calculation of Loss of Profit

Calculation of Adjusted Annual Turnover (AAT)

Calculation of Claim for Additional Expenses

(iii) Reduction in Turnover Avoided(Additional sales due to Additional Expenses) X GP Ratio

Calculation of Actual Loss

Calculation of Insurance Claim

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Following further details of turnover are furnished:

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Solution: Calculation of Short Sales

Calculation of Loss of Profit

Calculation of Adjusted Annual Turnover (AAT)

Calculation of Claim for Additional Expenses

(iii) Reduction in Turnover Avoided(Additional sales due to Additional Expenses) X GP Ratio

CA IQTIDAR A. MALIK [B.COM, ACA, CS]

Calculation of Actual Loss

Calculation of Insurance Claim

CA IQTIDAR A. MALIK [B.COM, ACA, CS]