Fire insurance claim

A memorandum Trading A/c is prepared for the beginning of the year till the date of fire to find
out the value of stock on the date of fire.
Memorandum Trading A/c 1/4/2010 to 1/9/2010
To Opening Stock 40,000 By Sales 1,00,000
To Purchases 70,000
To Expenses 20,000
To Gross Profit 30,000 By Closing Stock 60,000
(1/3 on sales)
1,60,000 1,60,000

G.P ratio = G.P x 100

Net Sales

Statement of Loss
Stock on the date of fire 60,000
Less: Salvage 15,000
Actual Loss 45,000

Average Clause is applicable only in case of “Under Insurance” means policy amount is less when
compared with stock on the date of fire. Average clause is applied as follows

Amount of policy x Actual Loss =Actual claim

Stock on the date of fire

Ex: If amount of policy is Rs 50,000,

then actual claim = 50,000x45,000 =37,500
60,000

Normal Rate of GP to be applied during the memorandum period is dermined as follows

1. When trading A/c is given for the previous year GP ratio is accepted for the memorandum
period

2. When trading A/c is given for 2 or more previous years proceeding the year of fire, following
possibilities may arise

2008 2009 2010 Mem, period

1 30% 28% 32% Average
2 24% 26% 28% Follow the trend
3 36% 34% 32%
4 30% 30% 30% Constant

3. Opening Stock & Closing Stock must always be valued at cost price

4. Following Transactions must be credited to Trading A/c at their cost price only

➢ Goods distributed at free sample

➢ Goods withdrawn for personal use
➢ Goods lost in fire, theft or accident.
➢ Goods sent on sales or return Basis
➢ Goods sent on consignment
➢ Misappropriation of Goods

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Solution 1 A
Closing Stock is overvalued by 10%
B.V Cost
110 100
99,000 ?
90,000

Trading A/c 1987

To Opening Stock 50,000 By Sales 5,00,000
To Purchases 3,20,000
By Closing Stock 90,000
To Gross Profit 2,20,000
5,90,000 5,90,000

G.P Ratio 2,20,000 = 44%

5,00,000
Memorandum Trading A/c 1.1.88 to 15.8.88
To Opening Stock 90,000 By Sales 5,00,000
To Purchases 1,55,000
By Stock on the date of fire 90,000
To Gross Profit 88,000
(44% on sales)
3,33,000 3,33,000

Statement of Loss
Stock on the date of fire 1,33,000
- Salvage Nil
Actual Loss 1,33,000

Note – Since amount of policy is not given it is assumed that stock is fully insured therefore
Actual Claim = Actual Loss = 1,33,000.

Solution 1 B
Closing Stock is overvalued by 10%
B.V Cost
110 100
99,000 ?
90,000

Trading A/c 1987

To Opening Stock 50,000 By Sales 5,00,000
To Purchases 3,20,000
By Closing Stock 1,10,000
To Gross Profit 2,40,000
6,10,000 6,10,000

G.P Ratio 2,20,000 = 44%

5,00,000
Memorandum Trading A/c 1.1.88 to 15.8.88
To Opening Stock 1,10,000 By Sales 5,00,000
To Purchases 1,55,000
By Stock on the date of fire 1,61,000
To Gross Profit 96,000
(44% on sales)
3,61,000 3,61,000

2
Statement of Loss
Stock on the date of fire 1,61,000
- Salvage Nil
Actual Loss 1,61,000

Note – Since amount of policy is not given it is assumed that stock is fully insured therefore
Actual Claim = Actual Loss = 1,61,000.

Solution 2
Opening Stock is undervalued by 10%
B.V Cost
90 100
36,000 ?
40,000
Closing Stock is overvalued by 10%
B.V Cost
110 100
66,000 ?
60,000

Trading A/c for 1984

To Opening Stock 40,000 By Sales 6,00,000
To Purchases 4,80,000 By Goods Destroyed by fire 10,000

To Gross Profit 1,50,000 By Closing Stock 60,000

6,70,000 6,70,000

G.P Ratio = G.P X 100 = 1,50,000 X 100 = 25 %

Net sales 6,00,000

Memorandum Trading A/c 1/1/1985 to 4/5/1985

To Opening Stock 60,000 By Sales 3,00,000
To Purchases 2,30,000
By Stock on the Date of Fire 65,000
To Gross Profit 75,000
(25% on sales)
3,65,000 3,65,000

Statement of Loss
Stock on the date of fire 65,000
Less: Salvage 13,000
Actual Loss 52,000
Average Clause (Policy < stock on the date of fire)
Actual Claim = Amt of Policy X Actual Loss 40,000 X 52,000 = 32,000
Stock on the date of Fire 65,000

Solution 4
Trading A/c for 31/3/1988
To Opening Stock 3,20,000 By Sales 1,20,000
To Purchases 7,20,000
By Closing Stock 3,40,000
To Gross Profit 4,80,000 less: Overvalued 20,000 3,20,000
15,20,000 15,20,000

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 Cost + G.P = Sales
P.Y 60 + 40 = 100
M.P 60 + 30 = 90 10%

Cost remain the same selling price will change

Memorandum Trading A/c 1/4/1988 to 1/9/1988

To Opening Stock 3,20,000 By Sales 3,70,000
To Purchases 2,50,000 Less:- March 88 1,00,000 2,70,000
Less:- March 88 60,000 1,90,000
By Stock on the Date of Fire 3,30,000
To Gross Profit 90,000
(1/3 on sales)
5,70,000 5,70,000

Statement of Loss
Stock on the date of fire 3,30,000
Less: Salvage 1,10,000
Actual Loss 2,20,000

Average Clause (Policy Amt < stock on the date of fire)

Actual Claim = Amt of Policy X Actual Loss = 2,20,000 X 3,00,000 = 2,00,000
Stock on the date of Fire 3,30,000

Solution 4
Trading A/c for 1979
To Opening Stock 7,350 By Sales 48,700
To Purchases 39,800
Less: Abnormal Goods 690 39,110 By Closing Stock 7,960
Less: Abnormal Goods 460
To Gross Profit 4,80,000 7,500
56,200 56,200

Memorandum Trading A/c 1/4/1980 to 15/6/1980

To Opening Stock 7,500 By Sales 23,120
To Purchases 16,200 Less: Abnormal Goods 320 22,800

By Stock on the Date of Fire 5,460

To Gross Profit 4,560
(20% on sales)
28,260 28,260

Abnormal Goods 690

(cost)

Sold Unsold
Cost - 345 Cost - 345

Statement of Loss
Stock on the date of fire 5,460
Add: Abnormal Goods 345

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 5,805
Less: Salvage 580
Actual Loss 5,225

Solution 5
Trading A/c for 1985
To Opening Stock 20,000 By Sales 2,22,000
To Purchases 1,60,000 Less: Sales Return 22,000 2,00,000
Less: Abnormal Goods 5,000 1,55,000

To Freight Inwards 5,000 By Closing Stock 22,000

To Gross Profit 38,000 Less: Abnormal Goods 4000 18,000
(19% on sales)
56,200 56,200

Trading A/c for 1986

To Opening Stock 18,000 By Sales 2,02,500
To Purchases 1,45,000 Less: Sales Return 4,000
Less: Abnormal Goods 6,000 1,39,000 1,98,500
Less: Abnormal Goods 4,500 1,94,000

To Freight Inwards 3,000 By Closing Stock 11,800

To Gross Profit 38,800 Less: Abnormal Goods 7,000 4,800
(20% on sales)
1,98,800 1,98,800

Trading A/c for 1987

To Opening Stock 4,800 By Sales 1,93,500
To Purchases 1,45,000 Less: Sales Return 6,000
Less: Abnormal Goods 6,000 1,58,000 1,87,500
Less: Abnormal Goods 5,500 1,82,000

To Freight Inwards 5,000 By Closing Stock 11,800

To Gross Profit 38,220 Less: Abnormal Goods 7,000 24,020
(21% on sales)
1,98,800 1,98,800

Memorandum Trading A/c 1/4/1988 to 30/4/1988

To Opening Stock 24,020 By Sales 28,500
To Purchases 35,000 Less: Sales Return 2,000
26,000
To Freight Inwards 1,000 Less: Abnormal Goods 6,000 20,000
To Gross Profit 4,400
By Stock on the date of fire 44,420

64,420 64,420

Statement of Loss
Stock on the date of fire (Normal Goods) 44,420
Add: Abnormal Goods 5,000
49,420
Less: Salvage 10,000
Actual Loss 39,420

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Note – Since amount of policy is not given it is assumed that stock is fully insured therefore
Actual Claim = Actual Loss = 39,420

Solution 6
Not in syllabus

Solution 7
Trading A/c for 1986
To Opening Stock 1,00,000 By Sales 2,46,000
Less: Abnormal Goods 4,000 96,000 Less: Abnormal Goods 1,000 2,45,000

To Purchases 1,20,000
Less: Furniture Purc. 1,500 1,18,500

To Wages 30,000
(-) Capital Exp. 2,000 By Closing Stock 42,000
28,000 Less: Abnormal Goods 3,000 39,000
(+) Outstanding 1,500 29,500

To Freight Inwards 5,000

To Gross Profit 35,000

2,84,000 2,84,000

Memorandum Trading A/c 1/4/1984 to 31/10/1984

To Opening Stock 39,000 By Sales 1,42,900
To Purchases 1,42,800 Less: Abnormal Goods 800 1,42,100

By Stock on the Date of Fire 60,000

To Gross Profit 20,300
(20% on sales)
2,02,100 2,02,100

Statement of Loss
Stock on the date of fire 60,000
Add: Abnormal Goods 3,200
63,200
Less: Salvage 47,400
Actual Loss 15,800

Average Clause (Policy Amt < stock on the date of fire)

Actual Claim = Amt of Policy X Actual Loss = 40,000 X 15,800 = 10,533

Stock on the date of Fire 60,000

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Calculation of Abnormal Goods

Cost R.V
8,000 4,000
Sold Balance
31/12/82
Cost 2,000 Cost 6,000 R.V 3,000

S.P 1,000
Less from Clo. Stock
Less from
sales

Sold Balance
1/3

2,000 4,000
80%
S.P 800 M.V 3,200 (Add to stock on the date of fire )

Solution 8

WN: 1
For the Amt. Received from Debtors
Total Deposit 1,06,300
(-) Sale Of Debenture 10,000
(-) Interest on Debenture 300
(+) Used by Bipin 3,000
Amt. received by Debtors 99,000

WN: 2
For the Amt Paid to Creditors
Total Payment made 1,30,000
(-) Plant & Installation charges 36,000
(-) Business Exp 4,000
Paid to Ceditors 90,000

Debtors
To Bal. b/d 20,500 By Cash/ Bank (WN: 1) 99,000

To Sales A/c 89,500 By Bal. c/d 11,000

1,10,000 1,10,000

Creditors
To Cash/Bank (WN2) 90,000 By Bal. b/d 35,000

To Bal. c/d 30,000 By Purchases 85,000

1,20,000 1,20,000

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 Memorandum Trading A/c 1/1/1988 to 15/08/1988
To Opening Stock 40,000 By Sales 89,500
To Purchases 85,000 Less: Abnormal Goods 500 90,000

By Goods withdrawn 5,000

To Gross Profit 30,000
By Stock on the Date of Fire 60,000

1,55,000 1,55,000

Statement of Loss
Stock on the date of fire 60,000
Less: Salvage 15,000
Actual Loss 45,000

Average Clause (Policy Amt < stock on the date of fire)

Actual Claim = Amt of Policy X Actual Loss = 50,000 X 45,000 = 37,500
Stock on the date of Fire 60,000

Solution 9
Trading A/c for 1979
To Opening Stock 1,00,000 By Sales 8,00,000
To Purchases 3,65,000
To Wages 1,08,000 By Closing Stock 45,000
To Direct Expenses 72,000
To Gross Profit 2,00,000
8,45,000 8,45,000

G.P Ratio = G.P X 100 = 2,00,000 X 100 = 25 %

Net sales 6,00,000

Memorandum Trading A/c 1/1/1988 to 01/04/1988

To Opening Stock 45,000 By Sales 80,000
To Purchases 24,000 (+) March 40,000 1,20,000
(+) March 12,000 32,000
To Wages 27,000 By Goods Stolen 6,000
To Direct Expenses 18,000
By stock on the date fire 30,000
To G.P 30,000
1,56,000 1,56,000

Statement of Loss
Stock on the date of fire 30,000
Less: Salvage 5,000
Actual Loss 25,000

Average Clause (Policy Amt < stock on the date of fire)

Actual Claim = Amt of Policy X Actual Loss = 25,000 X 22,500 = 18,750
Stock on the date of Fire 30,000

Calculation of Wages & Direct Expenses

Wages :- 1,08,000 X 3m = 27,000 D. Exp 72,000 X 3 m = 18,000
12 m 12 m

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Solution 10
Opening Stock is undervalued by 10%
B.V Cost
90 100
2,88,000 ?
3,20,000
Closing Stock is overvalued by 10%
B.V Cost
110 100
4,84,000 ?
4,40,000

Trading A/c for 1979

To Opening Stock 3,20,000 By Sales 23,20,000
To Purchases 18,76,000 By Goods lost in Accident 1,00,000
To Wages 2,00,000 By Closing Stock 4,40,000

To Gross Profit 4,64,000

28,60,000 28,60,000

G.P Ratio = G.P X 100 = 4,64,000 X 100 = 20 %

Net sales 23,20,000

Memorandum Trading A/c 1/1/1983 to 01/04/1983

To Opening Stock 4,40,000 By Sales 4,80,000
To Purchases 3,64,000
To Wages 36,000
To Gross Profit 96,000 By stock on the date fire 4,56,000
(20% on sales)
9,36,000 9,36,000

Statement of Loss
Stock on the date of fire 4,56,000
Less: Salvage 56,000
Actual Loss 4,00,000

Average Clause (Policy Amt < stock on the date of fire)

Actual Claim = Amt of Policy X Actual Loss = 4,00,000 X 3,42,000 = 3,00,000
Stock on the date of Fire 4,56,000

Solution 11

Calculation of Abnormal Goods.

Cost 6,000 (M.V) 3,000

(Less from Clo. Stock)

Sold ¾ Unsold ¼

Cost 4,500 Cost 1,500

X 90 % X 90 %
Amt. Realised 4,050 (Market Value) 1,350

(Less from Sales) (Add to stock on date of fire)

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 Trading A/c for 1987
To Opening Stock 27,570 By Sales 3,51,000
To Purchases 2,70,750
Less: Abnormal Goods 3,000 2,67,750 By Closing Stock 51,120
Less: Abnormal Goods 1,500 49,620
To Gross Profit 1,05,300
4,00,620 4,00,620

Memorandum Trading A/c 1/1/1988 to 01/04/1988

To Opening Stock 49,620 By Sales 91,500
To Purchases 75,000 Less: Abnormal Goods 2,700 88,800
Add: Unrecorded 1,500 90,000
By Stock on the Date of Fire 77,460
To Gross Profit 26,640
(20% on sales)
166,260 1,66,260

Statement of Loss
Stock on the date of fire 77,460
Less: Salvage 6,300
Actual Loss 71,160

Solution 12
Trading A/c for 1987
To Opening Stock 37,500 By Sales 3,15,000
To Purchases 2,53,750
Less: Abnormal Goods 6,000 2,47,750 By Closing Stock 52,000
Less: Abnormal Goods 3,000 49,000
To Gross Profit 78,750
3,64,000 3,64,000

Memorandum Trading A/c 1/4/1978 to 30/09/1978

To Opening Stock 49,000 By Sales 1,84,050
To Purchases 1,45,000 Less: Abnormal Goods 4,050 1,80,000

By Stock on the Date of Fire 59,000

To Gross Profit 45,000
(25% on sales)
166,260 1,66,260

Statement of Loss
Stock on the date of fire (Normal Goods) 59,000
Add: Abnormal Goods 1,350
60,350
Less: Salvage 7,200
Actual Loss 53,150

Note – Since amount of policy is not given it is assumed that stock is fully insured therefore
Actual Claim = Actual Loss = 53,150.

Solution 13
Not in Syllabus

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