CA INTERMEDIATE

bus prem
alternate
X
- - X

⑮aa
i X
H
19 ⑧
O

-
31 12 20
- -

-
-

!
Turnover
↓

stock
↓
LOSS /
Profit
-

calculate
-
-

3
10 Turnover *
Loss or Profit .
20 In in cow

Redn in F Inc in
x 3 C ->

profit
. .
. .

-
LOP
-

CA Tejas Suchak
 Loss of Profit

1. In respect of Reduction in Turnover xxx

(Reduction in T.O. * Adjusted G.P. Rate)

2. In respect of increase in cost of working xxx

3. Less: Savings in insured standing charges (xxx)

Loss of Profit xxx

Reduction in Turnover

Reduction in Turnover Standard Turnover – Actual Turnover

1.4.17 1.8.17
⑭ex
30.9.17 31.3.18

Preceding
Financial Year Standard Turnover= 25,00,000

8
-
-
-
30 . 9018

Current
Actual = 2,00,000
Financial Year

*Standard Turnover should be adjusted for trends

 Adjusted Gross Profit Rate

fixed Expenses
= (Net Profit + Insured Standing Charges) * 100
Turnover of Preceding Financial Year
-

* Gross Profit Rate should be adjusted for trends

Turnover of Preceding Financial Year

Preceding Financial Year Current Financial Year

Turnover of this period

*T.O. of preceding FY should not be adjusted for trends

0
TW ↑R Prem *
03
S = -

↓ R
P CS
-
Pree I
=
DE

⑧
GP FE =
100000

= %
-
-
- -

GP
- 0
70008

* I

o
/

IDE
-
-
-> y
0 X x -
-

x xx &

e X-E . X
-
--
-
 Increase in Cost of Working
50000
- ·

Or
~
Rent %
1. Actual cost =>
S0000
S
- -> 150000 x 15
-7

= 22500
M

2. Reduction in Turnover Avoided * Adjusted GP

-
Lowest of
O
- - -

Rate -
22500
=

/
the 3 is
3. Actual Cost * Net Profit + Insured Standing⑫ permissible
Charges
Net Profit + Insured Standing Charges +
⑮
-
-

Uninsured Standing Charges

>
-

FC 100000 1F2 70000

I
=
=

OR Actual Lost =

5000 X

3. Actual Cost * Annual Adjusted T.O. * Adjusted G.P. Rate ⑮

Annual Adjusted T.O. * Adjusted Gross Profit Rate + Uninsured
-
- - -

ISC +
-
VISL
Standing Charges -

⑮
ANNUAL ADJUSTED TURNOVER

Annual Adjusted T.O. = Turnover of 12 months immediately

preceding the date of fire.
Insurance sum
-
⑧ ⑭ GPR
↑ =
>

1.8.17 1.4.18 1.8.18 31.3.19

Annual Turnover Date of

Fire

* Annual Turnover needs to be adjusted for trends.

 CA INTERMEDIATE

Actual Lost x Annual Adjusted To x IS2

-

Annual
Adjusted To x GPR+Uninsured sc TS

is us
->

CA Tejas Suchak
 Average Clause
200000 -- Ul --250000 -
-
- -

2.Insured Sum
-
1.Insurable Sum
-
-
-

(Kitna Kiya) (Kitna Karna Chahiye)

*Given in the question* AATOX
Adjusted GPR

158000
x 150000 x
200000/250000
=
,

3.Loss of Profit
4.Claim = Loss of Profit * -

Insured Sum
Insurable Sum

Note: Insurable Sum = Annual Adjusted T.O. * GP Rate

Important: Average Clause is applicable when Insurable sum

exceeds Insured sum

Fr
·

-
m

12m To
-
(Annual) x
Adjusted GPR

trend
-
Ant
-
-
x Ad
--
GPR
 10.28 ACCOUNTING

Illustration 10
The premises of XY Limited were partially destroyed by fire on 1st March, 20X2 and
as a result, the business was practically disorganized upto 31st August, 20X2. The
company is insured under a loss of profits policy for ` 1,65,000 having an indemnity
period of 6 months.
-
↳ Sum
--
Ins
-

From the following information, prepare a claim under the policy:

- -
- -
-

(i) Actual turnover during the period of dislocation

-
`

C
-

(1-3-20X2 to 31-8-20X2) 80,000

(ii) Turnover for the corresponding period (dislocation)
--

in the 12 months immediately before the fire

(1-3-20X1 to 31-8-20X1) 2,40,000
-
-

(iii) Turnover for the 12 months immediately preceding

C
- - -
- -

the fire (1-3-20X1 to 28-2-20X2) Annual 6,00,000

- -

-
-
-
-

(iv) Net profit for the last financial year 90,000

-
- -

-
- -

(v) Insured standing charges for the last financial year

-
60,000
- -
-
-
2
-

(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
O
agreed that an adjustment of 10% should be made in respect of the upward trend in
-

⑧
- - --
-

turnover. The company incurred additional expenses amounting to ` 9,300

-
-
-

immediately after the fire and but for this expenditure, the turnover during the period
- -
-

O
-
--- -

of dislocation would have been only ` 55,000. There was also a saving during the
-

0
- - -

indemnity period of ` 2,700 in insured standing charges as a result of the fire.

- -
- - -

⑳
- -
D
-
- - -

Solution
25000
Computation of loss of profit Insurance claim ->

`
(1) Rate of gross profit:
Net profit for the last financial year 90,000
Add: Insured standing charges 60,000
1,50,000

© The Institute of Chartered Accountants of India

 CA INTERMEDIATE
Ion 10 : -

↳P
-

10 Red in TO : .
Redu in To x
Adjusted
"
GPR
55200
184000 X 30/ -
/

- -

20 Inc in.
cow 7500

in insured (2 ,00)
3 less :

savings s

Loss of
Profit 60000
I

Reduction in To -Stand To -
Actual To
- 264000-20000
-
184000
/ ~

R A

103 21 .
31 8.21 -

# -
240008
40/
" -

i 264000 -
-

D D

1 3-22
. 3118 22 .

1 -
↓
Actua To 80000 -b
->
=

80000
&

X X

i
AdjusGPR : - As
35000 25800
S

-N
-
11110 of PFY

500000
P

- 30 %

+O

- 30%

CA Tejas Suchak
 CA INTERMEDIATE
Increase in cow

1 .
Actual cost =

9300

2 .
Redn in to avoided x AGPR =
25000 x 30% : 7500

Adjusted (ius)
.
3 Actual cost x Annual To X
Annual
Adjusted To x AGPR+UISC

9300 X 600000 x 30 %
-

600000 X 30% + 5000

=

9-

Annual
Adjusted To

1
1 3 22 % .

12M
men

600000

+
-
-

Insurance claim

Insurable sum Insured Sum

I /

103 22
-

r
I

I opt
12m TO x AGPR
AATO X AGPR
30%
=

660 000
,
X

= 198000 =
16500
- I

Loss of
Profit Claim =
60000 x 105000/198000
-
-

60000
---
=

&

CA Tejas Suchak
 CA INTERMEDIATE
P = 60000
S

10 184000 x 38% =

55200
I

20 ICOW = 750
,

B less : =

LOP
-

ST-0 ATO
Redn in TO - 264000
. 20000
. . .

- 184000

I I
PFY 31 8 21
1 13 21
·
.
-

240000

o-
·

I 1
CAN
1 3 22
- . 31 -8 22 .

Actual TO :
20000
I

Adj #y
-Ye
GPR :
x100

=
90000 + 60000 x 100
-I

500000 500000
- -

=30 % =

304 E

Inco in cow

G
1 .
Actual lost :
9300
2 .
RITAX AGPR =
25000 x 30 % =
750

.
3 Actual Lost X AATO x AGPR -
o

AATO X AGPR+ VISL

A ATO
-
-
-
600000
, (10%x 600000)
+

- 660000
-

CA Tejas Suchak
 10.30 ACCOUNTING

(5) Claim: `
Loss of profit on short sales (30% on ` 1,84,000) 55,200
Add: Allowable additional expenses 7,500
62,700
Less: Savings in insured standing charges (2,700)
60,000
Application of average clause

 ` 1,65,000 
` 60,000 × ` 1,98,000  50,000
 
Illustration 11
Sony Ltd.’s. Trading and profit and loss account for the year ended 31 st December,
20X1 were as follows:
Trading and Profit and Loss Account for the year ended 31.12.20X1 -
-

` - `
25
C
/

F
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
50 To Administrative expenses ->
80,000 By Gross profit 2,50,000
- To X
Selling expenses X 20,000
F To Finance charges -> 1,00,000
To Net profit 50,000
2,50,000 2,50,000
Loss of stock
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 onI 1.4.20X2 at I

-
- -

O
= -

the premises and the entire stock were gutted with nil salvage value. The net quarter
-
-

sales i.e. 1.4.20X2 to 30.6.20X2 was severely affected. The following are the other
- -

information:
-
-
-
-

© The Institute of Chartered Accountants of India

 CA INTERMEDIATE
Loss of Profit

Redn in sted GPR

1 .
TO x
Any 10625
I

212500 X ST .

2 .
Increase in cow 4375
I

3 less
savings in insured
standing o 0
. :

LOP 15000

Reduction in Turnover

*
217391
,

N
1000000 ·

217391 =182609 (9m)

N NA P ID
33
101 21
-

I
14
21782889
.

/ I
30 6 21
. .

31 12-21
.

↑D
.

A
22
.

1000000 250000 - 115

As -

260870 c
I W
/

R 100

% 217391

00
=

->
I -
4
P D

104 22 .
30 6 22
- .

L I
Actual TO 87500 =

=Stan . Actual
=

300000 -
87500

=212500
-

Adjusted GPR

x 100

+
=

150000 x100 ↑

1000000
-

- 101
-

-
CA Tejas Suchak
 CA INTERMEDIATE
Increase in cow

1 . Actual cost = 60000

-

%.
2 Redu in To avoided Adjusted GPR 27500 5
4375
.
x =
x =

Actual Lost Annual AGPR

3
. x
AdyTOX -

Annual 1SC+UISC
Any Tox
1
AGPR+ VISC
=
60000 X 1150000 x 57 :

,
-

150000 x
·
% . + 130000
·

-
18400
L

Annual
Adjusted To

X 2173al
·
X I
250000
· I
t

in 21
N I I
101 21
-
1000000 31 12 21
. .
1 4 - 22
-

S
~

P O

1000000-217391 + 250000
1 -

250000(1022)
·

782609(2021) +
=

%
+ 15

-
900000 + 150000
-
-

= 1150000
-

Insurance Claim

Insurable sum Insured sum

r
104 22.

1-
12M Profit
AATO X AGPR
=1150000 x
-
St .
-100000
-
=>
57500
↑

Loss of
Profit claim =
15000
v

=
15008
S

CA Tejas Suchak
 CA INTERMEDIATE
Loss of stock

or
↓

(1 422)
Trading
1 . =>
als on DOF -

Xe

a rain
-

Trading als f tp-10122 to 31 3 22

- . .

OS 90000 S 250000
L -
&

↑ 300000
-
&
cs(bal) 260000
↑
↑

* E 70000
-
(DOF)
GP (20%) 50000
/

2 .
LOSS : CS 200000
-
SY 0
-

LOSS 260000
-
.

3 : I
-

Insurable sum Insured Sum

260000-01
,
-> 300000
-

Loss of stock Claim

260000 260000
· ~
&

CA Tejas Suchak
INSURANCE CLAIMS FOR LOSS OF STOCK AND LOSS… 10.31

I If
Sales during the period 1.1.X2 to 31.3.X2 2,50,000
I I
e -
I
- -
-
- - -

Purchasesduring the period 1.1.X2 to 31.3.X2 3,00,000

-

R
~
~
- -
-
I
I
- -

N
-

Manufacturing expenses
- 1.1.X2 to 31.3.X2
- -
70,000
=
I

-
- -

Sales during the period 1.4.X2 to 30.6.X2 87,500

-

i
-
O
- - - -
-

Standing charges insured 50,000

- - -

=> - -
-
-
u

Actual expense incurred after fire

v 60,000
-

==
-

The general trend of the industry shows an increase of sales by 15% and decrease in
O
-
-
-
-

GP by 5% due to increased cost.

-
- -

-
-

Ascertain the claim for stock and loss of profit.

-
-
-- --

Solution
Calculation of loss of stock:
Sony Ltd.
Trading A/c
for the period 1.1.20X2 to 31.3.20X2
` `
To Opening stock 90,000 By Sales 2,50,000
To Purchases 3,00,000 By Closing stock 2,60,000
To Manufacturing expenses 70,000 (balancing figure)
To Gross profit (20% ∗ of 50,000
` 2,50,000) (W.N.3)
5,10,000 5,10,000
`
Stock destroyed by fire 2,60,000
Amount of fire policy 3,00,000

As the value of stock destroyed by fire is less than the policy value, the entire claim
will be admitted.

∗G.P. of 20X1 25%

Less: Decrease in trend 5% 20%

© The Institute of Chartered Accountants of India