13 Insurance Claims for Loss of Stock & Loss of Profit

Transcription

1 13 Insurance Claims for Loss of Stock & Loss of Profit Question 1 On the stock of Mr. Black was destroyed by fire. However, following particulars were furnished from the records saved: Stock at cost on ,35,000 Stock at 90% of cost on ,62,000 Purchases for the year ended ,45,000 Sales for the year ended ,00,000 Purchases from to ,25,000 Sales from to ,80,000 Sales upto includes 75,000 being the goods not dispatched to the customers. The sales invoice price is 75,000. Purchases upto includes a machinery acquired for 15,000. Purchases upto does not include goods worth 30,000 received from suppliers, as invoice not received upto 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. (8 Marks) (May, 2007)(PCC)

2 Insurance Claims for Loss of Stock & Loss of Profit 13.2 In the books of Mr. Black Trading Account for the year ended To Opening Stock 1,35,000 By Sales 9,00,000 To Purchases 6,45,000 By Closing Stock at cost 1,80,000 To Gross Profit 3,00, ,62, ,80,000 10,80,000 Memorandum Trading A/c for the period from to To Opening Stock at cost 1,80,000 By Sales 4,80,000 To Purchases 2,25,000 Add: Goods received but invoice not received 30,000 2,55,000 Less: Machinery 15,000 2,40,000 To Gross Profit (Refer working note) 1,35,000 Calculation of Insurance Claim Less: Goods not dispatched 75,000 4,05,000 By Closing stock (Balancing figure) 1,50,000 5,55,000 5,55,000 Claim subject to average clause = Actual loss of stock x Amount of Policy / Value of stock on the date of fire Working Note: 3,00,000 1 G.P. ratio = 100 = 33 % 9,00,000 3 = 1,50,000 1,20,000 x = 1,20,000 1,50,000 Amount of Gross Profit = 4,05,000 x % = 1,35,000 Salvaged stock amounting 22,500 handed over to the insurance company is also a loss to Mr. Black.

3 13.3 Accounting Question 2 On the premises of Rocky Ltd. was destroyed by fire. The following information is made available: Stock as on ,75,000 Purchases from to ,20,000 Sales from to ,55,000 Stock as on ,00,000 Purchases from to ,41,000 Sales from to ,35,500 In valuing the stock on , 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. (8 Marks) (May, 2008) (PCC) In the books of Rocky Ltd. Trading Account for the year ended To Opening stock 3,75,000 By Sales 8,55,000 To Purchases 5,20,000 By Closing stock (W.N.) 2,11,000 To Gross profit (Bal. fig.) 1,71,000 10,66,000 10,66,000 Gross profit ratio of = Gross profit Sales 100 = 1,71,000 8,55, = 20%

4 Insurance Claims for Loss of Stock & Loss of Profit 13.4 Memorandum Trading Account for the period to Normal Abnormal Normal Abnormal To Opening stock 1,89,000 11,000 By Sales 4,30,000 5,500 To Purchases 3,41,000 By Closing stock 1,86,000 5,500 To Gross 20% 86,000 Computation of stock lost in fire: 6,16,000 11,000 6,16,000 11,000 Closing stock = Normal stock + Abnormal stock = 1,86, = 1,91,500 Less: Stock salvaged 11,500 Stock lost in fire 1,80,000 Working Note: Closing stock = Closing stock as given + Amount written off = 2,00, ,000 = 2,11,000 Question 3 From the following details, calculate consequential loss claim: 1. Date of fire: 1 st September following; 2. Indemnity period: 6 months; 3. Period of disruption : 1 st September to 1 st February; 4. Sum insured: 1,08,900; 5. Sales were 6,00,000 for preceding financial year ended on 31 st 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;

5 13.5 Accounting 9. Turnover during the disruption period 67,500; 10. Annual turnover for 12 months immediately preceding the date of fire 6,60,000; 11. Standard turnover i.e. for corresponding months (1 st September to 1 st February) in the year preceding the date of fire 2,25,000; 12. Increase in the cost of working capital 12,000 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%. (8 Marks) (November, 2008) (PCC) Computation of the amount of claim for consequential loss: (i) Calculation of short sales: Standard turnover of 1 st September to 1 st October (preceding) 2,25,000 Add: Increase of 10% due to upward trend 22,500 Adjusted turnover 2,47,500 Less: Actual turnover during disruption period i.e. 1 st September to 1 st October (following) 67,500 1,80,000 (ii) Increased rate of G.P. = 18% + 2% = 20% on sales. (iii) Loss of profit on short sales = 20% of 1,80,000 = 36,000. (iv) Calculation of claim for increased cost of working capital: Increased cost of working will be lower of (i) Actual expense 12,000 (ii) G.P.on Annualturnover Additionalexpenses G.P.on Annualturnover+ Uninsuredcharges 1,45,200 12,000 1,45, ,000 11,523 (iii) G.P. on additional sales = 30,000 x 20% 6,000

6 Insurance Claims for Loss of Stock & Loss of Profit ,000 is lower of above three, so additional expenses would be 6,000 Net claim for increased cost of working capital = 6,000 minus savings in insured standing charges = 6,000 4,500 = 1,500 (v) Calculation of adjusted annual sales Sales for 12 months preceding the date of fire 6,60,000 Add: 10% of increase in trend 66,000 Adjusted Annual Sales 7,26,000 (vi) Insurable Amount i.e gross profit on adjusted annual sales Adjusted annual sales 7,26,000 Rate of Gross Profit 20% Insurable amount ( 7,26,000 x 20%) 1,45,200 (vii) Amount of Insurance Claim: InsuredAmount = TotalLoss( Loss of profit + Claim for increased cost) InsurableAmount 1,08,900 = (36, ,500) = 28,125. 1,45,200 Question 4 What is average clause under insurance claim? (2 Marks)(June, 2009) (PCC) When a businessman wants to reduce the burden of Insurance Premium and wants to take an insurance policy which is less than the value of average stock, it is known as under insurance. For discouraging the under-insurance, fire insurance policies contain an average clause. In such a case, the net claim is calculated by using following formula: Amount of claim = Amount of Policy ActualLoss InsurableAmount

7 13.7 Accounting Question 5 Calculate the amount of Insurance claim to be lodged, based on the following information: Value of stock destroyed by fire 90,000 Insurance policy amount (subject to average clause) 65,000 Value of stock salvaged from fire 40,000 (2 Marks) (November, 2009) (PCC) Total stock before fire = 90, ,000 = 1,30,000. Stockdestoyed by fire Amount of insurance claim= Amount insured Total stockbeforefire 90,000 = 65,000 = 45,000 1,30,000 Question 6 A fire broke out in the godown of a business house on 8 th July, Goods costing 2,03,000 in a small sub-godown remain unaffected by fire. The goods retrieved in a damaged condition from the main godown were valued at 1,97,000. The following particulars were available from the books of accounts: Stock on the last Balance Sheet date at 31 st March, 2009 was 15,72,000. Purchases for the period from 1 st April, 2009 to 8 th July, 2009 were 37,10,000 and sales during the same period amounted to 52,60,000. The average gross profit margin was 30% on sales. The business house has a fire insurance policy for 10,00,000 in respect of its entire stock. Assist the Accountant of the business house in computing the amount of claim of loss by fire. (8 Marks) (November, 2009) (IPCC) Calculation of amount of claim Value of stock as on 8 th July, 2009 (Refer W.N.) 16,00,000 Less: Value of stock remaining unaffected by fire 2,03,000 Agreed value of damaged goods 1,97,000 4,00,000 Loss of stock 12,00,000

8 Insurance Claims for Loss of Stock & Loss of Profit 13.8 Applying average clause: Amount of policy Amount of claim = Lossof stock Stockonthe date of fire = 10,00,000 12,00,000 16,00,000 = 7,50,000 Working Note: Memorandum Trading Account for the period from 1 st April, 2009 to 8 th July, 2009 To Opening Stock 15,72,000 By Sales 52,60,000 To Purchases 37,10,000 By Closing Stock (Bal.Fig.) 16,00,000 To Gross Profit (30% of sales) 15,78,000 68,60,000 68,60,000 Question 7 In January, 2010 a firm took an insurance policy for 60 lakhs to insure goods in its godown against fire subject to average clause. On 7 th March, 2010 a fire broke out destroying goods costing 44 lakhs. Stock in the godwon was estimated at 80 lakhs. Compute the amount of insurance claim. (2 Marks) (May, 2010) (IPCC) Amount of insurance claim Question 8 = Amount of loss due to fire = 44 lakhs Rs.60lakhs Rs.80lakhs = 33 lakhs Amount of insurance policy Totalstock in the godown A trader 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 4,50,000

9 13.9 Accounting Standing charges in last financial year 90,000 Net profit earned in last year was 10% of turnover and the same trend expected in subsequent year. Increase in turnover expected 25%. To achieve additional sales, trader has to incur additional expenditure of 31,250. (4 Marks) (November, 2010) (IPCC) (a) Calculation of Gross Profit Gross Profit = Net Profit + Standing Charges 100 Turnover = 45, , = 30% 4,50,000 (b) Calculation of policy amount to cover loss of profit Turnover in the last financial year 4,50,000 Add: 25% increase in turnover 1,12,500 5,62,500 Gross profit on increased turnover (5,62,500 x 30%) 1,68,750 Add: Additional standing charges 31,250 Policy Amount 2,00,000 Therefore, the trader should go in for a loss of profit policy of 2,00,000. Question 9 On 30 th March, 2011 fire occurred in the premises of M/s Suraj Brothers. The concern had taken an insurance policy of 60,000 which was subject to the average clause. From the books of accounts, the following particulars are available relating to the period 1 st January to 30 th March (1) Stock as per Balance Sheet at 31 st December, 2010, 95,600. (2) Purchases (including purchase of machinery costing 30,000) 1,70,000 (3) Wages (including wages 3,000 for installation of machinery) 50,000.

10 Insurance Claims for Loss of Stock & Loss of Profit (4) Sales (including goods sold on approval basis amounting to 49,500) 2,75,000. No approval has been received in respect of 2/3 rd of the goods sold on approval. (5) The average rate of gross profit is 20% of sales. (6) The value of the salvaged goods was 12,300. You are required to compute the amount of the claim to be lodged to the insurance company. Computation of claim for loss of stock (5 Marks) (May, 2011) (IPCC) Stock on the date of fire i.e. on 30 th March, 2011 (W.N.1) 62,600 Less: Value of salvaged stock (12,300) Loss of stock 50,300 Insured value 48,211 (approx.) Amount of claim = x Loss of stock Total cost of stock on the date of fire 60,000 = 50,300 62,600 A claim of 48,211 (approx.) should be lodged by M/s Suraj Brothers to the insurance company. Working Notes: 1. Calculation of closing stock as on 30 th March, 2011 Memorandum Trading Account for (from 1 st January, 2011 to 30 th March, 2011) Particulars Amount () Particulars Amount () To Opening stock 95,600 By Sales (W.N.3) 2,42,000 To Purchases (1,70,000 30,000) 1,40,000 By Goods with customers (for approval) (W.N.2) 26,400 To Wages (50,000 3,000) 47,000 By Closing stock (Bal. fig.) 62,600 To Gross profit (20% on sales) 48,400 3,31,000 3,31,000

11 13.11 Accounting 2. Calculation of goods with customers Since no approval for sale has been received for the goods of 33,000 (i.e. 2/3 of 49,500) hence, these should be valued at cost i.e. 33,000 20% of 33,000 = 26, Calculation of actual sales Total sales Sale of goods on approval = 2,75,000 33,000 = 2,42,000. Question 10 A fire occurred in the premises of M/s. Fireproof Co. on 31 st August, From the following particulars relating to the period from 1 st April, 2010 to 31 st August, 2010, you are requested to ascertain the amount of claim to be filed with the insurance company for the loss of stock. The concern had taken an insurance policy for 60,000 which is subject to an average clause. (i) Stock as per Balance Sheet at ,000 (ii) Purchases 1,70,000 (iii) Wages (including wages for the installation of a machine 3,000) 50,000 (iv) Sales 2,42,000 (v) Sale value of goods drawn by partners 15,000 (vi) Cost of goods sent to consignee on 16 th August, 2010, lying unsold with them 16,500 (vii) Cost of goods distributed as free samples 1,500 While valuing the stock at 31 st March, 2010, 1,000 were written off in respect of a slow moving item. The cost of which was 5,000. A portion of these goods were sold at a loss of 500 on the original cost of 2,500. The remainder of the stock is now estimated to be worth the original cost. The value of goods salvaged was estimated at 20,000. The average rate of gross profit was 20% throughout. (10 Marks) (November, 2011) (IPCC) Memorandum Trading Account for the period 1 st April, 2010 to 31 st August, 2010 Normal Items Abnormal Items Total Normal Items Abnormal Items Total To Opening stock 95,000 5,000 1,00,000 By Sales 2,40,000 2,000 2,42,000 To Purchases (Refer W.N.) 1,56,500-1,56,500 By Goods sent to consignee 16,500-16,500

12 Insurance Claims for Loss of Stock & Loss of Profit To Wages 47,000-47,000 By Loss To Gross 20% 48,000-48,000 By Closing stock (Bal.fig.) 90,000 2,500 92,500 3,46,500 5,000 3,51,500 3,46,500 5,000 3,51,500 Statement of Claim for Loss of Stock Book value of stock as on ,500 Less: Stock salvaged (20,000) Loss of stock 72,500 Amount of claim to be lodged with insurance company Policy value = Loss of stock x Value of stock on the date of fire = 72,500 x 60,000 92,500 = 47,027 Working Note: Calculation of Adjusted Purchases Purchases 1,70,000 Less: Drawings (12,000) Free samples (1,500) Adjusted purchases 1,56,500 Question 11 Ramda & Sons had taken out policies (without Average Clause) both against loss of stock and loss of profit, for 2,10,000 and 3,20,000 respectively. A fire occurred on 1st July, 2011 and as a result of which sales were seriously affected for a period of 3 months. Trading and Profit & Loss A/c of Ramda & Sons for the year ended on 31st March, 2011 is given below: Particulars Amount () Particulars Amount () To Opening Stock 96,000 By Sales 12,00,000

13 13.13 Accounting To Purchases 7,56,000 By Closing Stock 1,85,000 To Wages 1,58,000 To Manufacturing Expenses 75,000 To Gross Profit c/d 3,00,000 13,85,000 13,85,000 To Administrative Expenses 83,600 By Gross Profit b/d 3,00,000 To Selling Expenses (Fixed) 72,400 To Commission on Sales 34,200 To Carriage Outward 49,800 To Net Profit 60,000 3,00,000 3,00,000 Further detail provided is as below: (a) Sales, Purchases, Wages and Manufacturing Expenses for the period to were 3,36,000, 2,14,000, 51,000 and 12,000 respectively. (b) Other Sales figure were as follows From to ,00,000 From to ,20,000 From to ,000 (c) Due to decrease in the material cost, Gross Profit during was expected to increase by 5% on sales. (d) 1,98,000 were additionally incurred during the period after fire. The amount of policy included 1,56,000 for expenses leaving 42,000 uncovered. Compute the claim for stock, loss of profit and additional expenses (16 Marks, May 2012) (IPCC) Claim for loss of stock Memorandum Trading Account for the period 1st April to 1st July, 2011 To Opening Stock 1,85,000 By Sales 3,36,000 To Purchases 2,14,000 By Closing stock To Wages 51,000 (Bal.fig.) 2,26,800 To Manufacturing expenses 12,000

14 Insurance Claims for Loss of Stock & Loss of Profit To Gross 30% on sales (W.N) 1,00,800 5,62,800 5,62,800 Claim for loss of stock will be limited to 2,10,000 only which is the amount of Insurance policy and no average clause will be applied. Loss of Profit (a) Short Sales : (b) (c) Sales from 1st July, 2010 to 30th Sept ,20,000 Add: 12% rise observed in over (April- June 3,36,000 instead of 3,00,000) 38,400 3,58,400 Less: Sales from 1st July, 2011 to 30th Sept (48,000) Short-Sales 3,10,400 Gross profit ratio Net Profit + Insured standing charges ( ) 100 Sales ( ) 60, ,56, = 18% 12,00,000 Add: Expected rise due to decline in material cost 5% Loss of Gross Profit 23% 23% on short sales 3,10,400= 71,392 (d) Annual turnover (12 months to 1st July, 2011): Amount () Sales for April March, ,00,000 Less: From to (3,00,000) 9,00,000 Add: From to ,36,000 12,36,000 Add: 12% increasing trend 1,48,320 13,84,320

15 13.15 Accounting (e) Gross Profit on annual 23% 3,18,394 Amount allowable in respect of additional expenses Least of the following: Amount () (i) Actual expenses 1,98,000 (ii) Gross Profit on sales during indemnity period 23% of 48,000 11,040 (iii) Gross profit on annual (adjusted) turnover Additional Expenses Gross profit as above + Uninsured charges (3,18,394/ 3,60,394) x 1,98,000 1,74,925 Least i.e. 11,040 is admissible. Claim Loss of Gross Profit 71,392 Add: Additional expenses 11,040 82,432 Insurance claim for loss of profit will be of 82,432 only. Working Note: Rate of Gross Profit in Gross Pr ofit 100 Sales 3,00, ,00,000 = 25% In , Gross Profit is expected to increase by 5% as a result of decline in material cost, hence the rate of Gross Profit for loss of stock is taken at 30%. Question 12 On 29 th August, 2012 the godown of a trader caught fire and a large part of the stock of goods was destroyed. However, goods costing 1,08,000 could be salvaged incurring fire fighting expenses amounting to 4,700. The trader provides you the following additional information: Cost of stock on 1 st, April, ,10,500

16 Insurance Claims for Loss of Stock & Loss of Profit Cost of stock on 31 st, March, ,90,100 Purchases during the year ended 31 st March, ,79,600 Purchases from 1st April, 2012 to the date of fire 33,10,700 Cost of goods distributed as samples for advertising from 1st April, 2012 to the date of fire 41,000 Cost of goods withdrawn by trader for personal use from 1st April, 2012 to the date of fire 2,000 Sales for the year ended 31st March, ,000 Sales from 1st April, 2012 to the date of fire 45,36,000 The insurance company also admitted firefighting expenses. The trader had taken the fire insurance policy for 9,00,000 with an average clause. Calculate the amount of the claim that will be admitted by the insurance company. (8 Marks, November 2012) (IPCC) Memorandum Trading Account for the period 1st April, 2012 to 29 th Aug.2012 To Opening Stock 7,90,100 By Sales 45,36,000 To Purchases 33,10,700 By Closing stock (Bal. 8,82,600 fig.) Less: Advertisement (41,000) Drawings (2,000) 32,67,700 To Gross Profit [30% of Sales 13,60,800 - Refer Working Note] 54,18,600 54,18,600 Statement of Insurance Claim Value of stock destroyed by fire 8,82,600 Less: Salvaged Stock (1,08,000) Add: Fire Fighting Expenses 4,700 Insurance Claim 7,79,300

17 13.17 Accounting Note: Since policy amount is more than claim amount, average clause will not apply. Therefore, claim amount of 7,79,300 will be admitted by the Insurance Company. Working Note: Trading Account for the period ended 31 st March, 2012 To Opening Stock 7,10,500 By Sales 80,00,000 To Purchases 56,79,600 By Closing stock 7,90,100 To Gross Profit 24,00,000 Rate of Gross Profit in Gross Pr ofit 100 = 24,00, Sales 80,00,000 = 30% Question 13 87,90,100 87,90,100 On 15th December, 2012, a fire occurred in the premises of M/s. OM Exports. Most of the stocks were destroyed. Cost of stock salvaged being 1,40,000. From the books of account, the following particulars were available: (i) Stock at the close of account on 31 st March, 2012 was valued at 9,40,000. (ii) Purchases from to amounted to 13,20,000 and the sales during that period amounted to 20,25,000. On the basis of his accounts for the past three years, it appears that average gross profit ratio is 20% on sales. Compute the amount of the claim, if the stock were insured for 4,00,000. (5 Marks, May 2013) (IPCC) Memorandum Trading Account For the period to Particulars Particulars To Opening stock To Purchases To Gross 9,40,000 13,20,000 4,05,000 By Sales By Closing Stock (Bal. figure) 20,25,000 6,40,000 26,65,000 26,65,000

18 Insurance Claims for Loss of Stock & Loss of Profit Statement of Claim Estimated value of Stock as at date of fire 6,40,000 Less: Value of Salvaged Stock 1,40,000 Estimated Value of Stock lost by fire 5,00,000 As the value of stock is more than insured value, amount of claim would be subject to average clause. Amount of Policy Amount of Claim= Actual Loss of Stock Value of Stock Amount of Claim = 4,00,000 5,00,000 6,40,000 = 3,12,500 Question 14 Monalisa & Co. runs plastic goods shop. Following details are available from quarterly sales tax return filed. Sales From 1 st January to 31 st March 1,80,000 1,70,000 2,05,950 1,62,000 From 1 st April to 30 th June 1,28,000 1,86,000 1,93,000 2,21,000 From 1 st July to 30 th September 1,53,000 2,10,000 2,31,000 1,75,000 From 1 st October to 31 st 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 to ,000 Sales from to Nil Sales from to ,000 Sales from to ,000 A loss of profit policy was taken for 1,00,000. Fire occurred on 15 th September, Indemnity period was for 3 months. Net Profit was 1,20,000 and standing charges (all insured) amounted to 43,990 for year ending 31 st December, 2011.

19 13.19 Accounting Determine the Insurance Claim. (1) Gross profit ratio (16 Marks, November 2013) (IPCC) Net profit in year ,20,000 Add: Insured standing charges 43,990 Gross profit 1,63,990 1,63,990 Ratio of gross profit = = 20% 8,19,950 (2) Calculation of Short sales Indemnity period: to Standard sales to be calculated on basis of corresponding period of year 2011 Sales for period to ,000 Sales for period to (Note 1) 1,30,000 Sales for period to ,64,000 Add: upward trend in sales (15%) (Note 2) 24,600 Standard Sales (adjusted) 1,88,600 Actual sales of disorganized period Calculation of sales from to Sales for period to Sales for to ( 1,48,000 20,000) 1,28,000 Actual Sales 1,28,000 Short Sales ( 1,88,600-1,28,000) 60,600 (3) Loss of gross profit Short sales x gross profit ratio = 60,600 x 20% 12,120 Nil

20 Insurance Claims for Loss of Stock & Loss of Profit (4) Application of average clause Net claim = Gross claim x policy value gross profit on annual turnover = 12,120 x 1,00,000 1,79,860 (Note 3) Amount of claim = 6, (approx.) i.e.. 6,739 (round off) Working Notes: 1. Sales for period to Sales for to (given) 1,90,000 Sales for to (given) 60,000 Sales for period to ,30, Calculation of upward trend in sales Total sales in year ,20,000 Increase in sales in year 2010 as compared to 2009 = 93,000 93,000(7,13,000-6,20,000) % increase = = 15% 6,20,000 Increase in sales in year 2011 as compared to year ,06,950(8,19,950-7,13,000) % increase = = 15% 7,13,000 Thus annual percentage increase trend is of 15%. 3. Gross profit on annual turnov Sales from to , to ,90, to ,62, to ,21, to (1,75,000 Nil) 1,75,000

21 13.21 Accounting Sales for 12 months just before date of fire 7,82,000 Add: 15% upward trend 1,17,300 Adjusted sales of 12 months just before the date of fire 8,99,300 Gross profit on adjusted annual 20% 1,79,860 Question 15 A fire occurred in the premises of M/s. Kailash & Co. on 30 th September From the following particulars relating to the period from 1 st April 2013 to 30 th 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) Purchase 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 20 th September 2013, lying 18,000 unsold with them (vii) Free Samples distributed -Cost 2,500 (8 Marks, IPCC November, 2014) Memorandum Trading Account for the period 1 st April, 2013 to 30 th Sept To Opening Stock 1,20,000 By Sales 3,10,000 To Purchases 2,40,000 By Consignment stock 18,000 Less: Advertisement (2,500) By Closing Stock (Bal. fig.) 1,41,500 Cost of goods taken by proprietor (20,000) 2,17,500 To Wages 70,000 To Gross Profit [20% of Sales) 62,000 4,69,500 4,69,500

22 Insurance Claims for Loss of Stock & Loss of Profit Statement of Insurance Claim Value of stock destroyed by fire 1,41,500 Less: Salvaged Stock (27,000) Insurance Claim 1,14,500 Note: Since policy amount is less than claim amount, average clause will apply. Therefore, claim amount will be computed by applying the formula Insured value Claim= Loss suffered Total cost Claim amount = 60,689 (1,14,500 x 75,000/ 1,41,500)