Step I GP Ratio = 30% Step -II MemorandumTrading A/c Particulars Amount Particulars Amount To Opening Stock To Purchase

Problems on Loss of Stock Problem.1 On 12 th June, 2007 Fire occurred in the premise of Patel. Cost of stock salvaged being 11,200. In addition, some stock was salved in a damaged condition and its value was agreed at 10,500. From the books of A/c, the following particulars are available:- 1. Stock on 31-12-2006 was 83,500. Purchases from 1-1-07 to 12-6-07 amounted to 1,12,000 and sales during that period was 1,54,000. On the basis of his A/cs from the past three years it appears that he earns on an average a gross profit of 30% 0n sales. Patel has insured his stock for 60,000. Compute the amount of the claim. Step I GP Ratio = 30% Step -II MemorandumTrading A/c Amount Amount To Opening Stock To Purchase 83,500 1,12,000 By Sales By Closing Stock (b/f) 1,54,000 87,700 To G.P.(154000 30%) 46,200 2,41,700 2,41,700 Step -III Closing stock immediatelybeforefire Less :- Salvage Statement of Loss by Fire Amount 87,700 21,700 Loss by fire 66,000 Note: sum insured is = 60000 Value of stock immediately before fire = 87700 Since sum insured is less than value of stock immediately before fire, therefore average clause will apply. Step -IV Average Clause Claim = loss by fire Value sum insured of stock in godown immediately before fire 60,000 66,000 45,154 87,700

Topper s Insurance Claim 2.2 Problem 2. On 31 st May 2015, the premises and stock of a firm were totally destroyed by fire. The books of A/cs were, however, saved. In order to make a claim on their fire policy, they asked for your advice and you are able to obtain the following information. The stock on hand has always been valued at 5 per cent below cost. 2012 2013 2014 2015 () () () () Opening Stock as Valued 22,800 30,400 36,100 39,900 Purchases Less Returns 91,000 1, 10,000 1, 20,000 41,000 Sales Less Returns 1, 40,000 1, 70,000 1, 86,000 75,000 Wages 28,400 31,200 34,200 12,000 Closing Stock 30,400 36,100 39,900 Prepare a statement of resubmission to the insurance company in support of your claim for loss of stock. Step I Trading Account of the year ended 31 st March 1992 1993 1994 1992 1993 1994 () () () () () () To Opening Stock 24,000 32,000 38,000 By Sales 1,40,000 1,70,000 1,86,000 To Purchases 91,000 1,10,000 1,20,00 By Closing Stock 32,000 38,000 42,000 To Wages 28,400 31,200 34,200 To Gross Profit 28,600 34,800 35,800 1,72,000 2,08,000 2,28,000 1,72,000 2,08,000 2,28,000 Total sales for three years 4,96,000 Average Gross profit ratio = 20% Total Gross profit for three years 99,200 Step II Memorandum Trading Account for the period from 1.4.94 to 31.8.94 () () To Opening Stock 42,000 By Sales 75,000 To Purchases 41,000 By Stock on the date of To Wages 12,000 fire (balancing figure) 35,000 To Gross Profit 15,000 1,10,000 1,10,000 Step III Statement of Loss by Fire Amount Closing stock immediately Before fire 35,000 Less :- Salvage - Loss by fire 35,000

Topper s Insurance Claim 2.3 Step IV Average Clause suminsured Claim loss by fire Value of stock in godown immediately before fire Claim = 35,000 Problem 3. The factory premises of Toy Company were engaged in fire on 31 st March 1983 as a result of which a major part of stock was burnt to ashes. The stock was covered by policy for 1,00,000 subject to average clause. The records at the office revealed following information: 1. (a) The company sold goods to dealers on one month credit at dealers price which is catalogue priced 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 Sales/Dispatch during period up to date of fire is; (a) Sale to dealer (without cash discount) 3,40,000. (c) Sale to agents 90.000. (b) Sale to dealer (net of cash discount) 3,23,000. (d) Dispatch to branches 3,00,000. 3. Stock on 1st January 1985 was 2,50,000 at catalogue price. 4. Purchases at cost from 1st January 1985 to 31st March 6,25,000. 5. Salvages stock valued at 45,000. Compute the amount of claim to be lodged. Step I Calculation of different types of G.P.Ratio Let suppose cost = 100, Then, 1. Catalogue price (cost + 100) = 200. Analysis table of different G.P. Ratio Catalogue Price Less: Trade Discount 200 15% 200 10% Less: Cash Dis. 170 5% Net sales Price Cost: GP: G. P. GP Ratio= 100 Sales Dealer Without cash discount 200 30 170 100 70 41.17% 70/170 100 Dealer (Cash Dis.) 200 30 170 8.5 161.5 100 61.5 38.08% 61.5/161.5 100 Agent 200 20 180 100 80 44.44% 80/180 100 Branch 200 200 100 100 50% 100/200 100

Topper s Insurance Claim 2.4 Step II Memorandum Trading Account (At Cost) () () To Opening Stock(250000 100/200 1,25,000 By Sales To Purchases A/c 6,25,0000 (i) Dealers 3,40,000 (ii) Dealers With Dis. 3,23,000 (iii) Agents 90,000 To GP 4,53,000 (iv) Branches 3,00,000 10,53,000 By Closing Stock 1,50,000 12,03,000 12,03,000 Step III Statement of Loss by Fire Closing stock immediatelybeforefire Less :- Salvage Amount 150000 (45,000) Loss by fire 105000 Net claim = Loss of stock Policy Value / Value of Stock on the date of fire 1,00,000 105000 70, 000 1,50,000 The insurance policy was taken for 1,00,000; but the value of stock on the date of fire was 1,50,000. Therefore, the average clause is applicable. Working Notes: Calculation of Gross Profit Types Amount G.P. Ratio = G.P. Dealer without C.D. 3,40,000 = 1,40,000 Dealer with C.D. Sales to Agent Branch 3,23,000 90,000 3,00,000 80 180 100 200 70 170 61.5 161.5 = 40,000 = 1,50,000 10,53,000 4,53,000 = 1,23,000 Problem 4. A fire occurred in the workshop of Mr. A on 31 st March, 2006 where a large part of the stock was destroyed. Scrap realised 7,500. Mr. A gives you the following information for the period of 1 st January to 31st March, 2006 : () (i) Purchases 42,500 (ii) Sales 45,000 (iii) Goods costing 1,000 were taken by Mr. A for personal use. (iv) Cost price of stock on 1 st January, 2006 was 20,000.

Topper s Insurance Claim 2.5 (v) Over the past few years, Mr. A has been selling goods at a consistent gross profit margin of 30%. (vi) The Insurance policy was for 25,000. It included an average clause. Prepare a statement of claim to be made on the Company by Mr. A. [May 2006, 6 Marks] Step I GP Ratio = 30% Step II Dr. Memorandum Trading A/c upto 31 st march, 2006 Cr. () () To Opening Stock A/c To Purchase A/c To G.P.(45000 30%) 20,000 42,500 13,500 By Sales A/c By Goods for personal use By Closing Stock A/c 45,000 1,000 30,000 76,000 76,000 Step III Value of closing stock Less :- Salvage Step IV Statement of loss by fire () 30,000 (7,500) Loss by fire 22,500 Average Clause Amount of policy Claim = Actual loss of Value of stock 25,000 22,500 = 18,750 30,000 stock Problem 5. On 2.6.2007 the stock of Mr. Black 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 Purchases from 1.4.2007 to 2.6.2007 2,25,000 Sales from 1.4.2007 to 2.6.2007 4,80,000 Sales upto 2.6.2007 includes 75,000 being the goods not dispatched to the customers. The sales invoice price is 75,000. Purchases upto 2.6.2007 includes a machinery acquired for 15,000. Purchases upto 2.6.2007 doesnot 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.

Topper s Insurance Claim 2.6 Value of stock salvaged from fire 22,500 and this has been handed over to the insurance company. The insurance policy is for l,20,000 and it is subject to average clause. Ascertain the amount of claim for loss of stock. [May 2007, 8 Marks] Step -I In the books of Mr. Black Dr. Trading A/c up to 31 st March, 2006 Cr. () () To Opening Stock A/c To Purchase A/c 1,35,000 6,45,000 By Sales A/c By Closing Stock A/c 9,00,000 1,80,000 To G.P.(Bal. Fig.) 3,00,000 (1,62,000 100/90) 10,08,000 10,80,000 3,00,000 GP Ratio = 100 33 1 9,00,000 Step -II % 3 1 or 3 Memorandum Trading A/c Dr. (For the period from 1.4.2007 to 2.6.2007) Cr. () () To Opening Stock at cost 1,80,000 By Sales A/c 4,80,000 To Purchase A/c 2,25,000 Less: Goods not (75,000) 4,05,000 Add: Goods received 30,000 Dispatched but inv not receive By Closing Stock A/c (b/f) 1,50,000 Less: Machinery (15,000) 2,40,000 To G.P. (W.N.)(405000 1/3) 1,35,000 5,55,000 5,55,000 Since sum insured 1,20,000 is less than value of stock immediately before fir, therefore average clause will apply. Step III Value of immediatelybeforefire Less :- Salvage Statement of loss by fire () 1,50,000 Nil Loss by fire 1,50,000 Step IV Average Clause Claim = Amount of policy Actual loss of Value of stock stock 1,20,000 = 1,50,000 1,20, 000 1,50,000 Note: Salvaged stock amounting 22,500 handed over to the insurance company is also treated as loss to Mr. black.

Topper s Insurance Claim 2.7 Problem 6. A fire broke out in the godown of a business house on 8th July, 2009. Goods costing 2,03,000 in a small subgodown remain un-affected 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 1st 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 accountant of the business house in computing amount of claim of loss by fire. [Nov- 2009, 8 Marks] Step I GP Ratio 30% of sales = 52,60,000 30% = 15,78,000 Step II Memorandum Trading Account for the period from 1 st April, 2009 to 8 th July, 2009 () () 15,72,000 By Sales 37,10,000 By Closing Stock 15,78,000 To Opening Stock To Purchases To Gross profit (30% of sales) Step III 52,60,000 1,60,000 68,60,000 68,60,000 Statement of loss by fire Calculation of amount of claim () Value of stock as on 8 th July, 2009 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 Step IV Applying average clause: Amount of policy Amount of claim = Stock on the date of fire 10,00,000 12,00,000 7,50,000 16,00,000 Loss of stock Problem 7. On 1st April, 1990 the stock of Sri Vyas was destroyed by fire but sufficient records were saved from which following particulars were ascertained: Stock at cost 1st January, 1989 73,500 Stock at cost 31st December, 1989 79,600 Purchase for the year ended 31st December 1989 3,98,000

Topper s Insurance Claim 2.8 Sales year ended 31 December, 1989 4,87,000 purchases 1.1.90 to 31.3. 90 1,62, 000 Sales 1.1.90 to 31.3. 90 2,31,200 In valuing the stock at 31 st December, 1989 2,300 had been written off certain stock which was a poor selling line, having cost 6,900. A portion of these goods were sold in March 1990 at a 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 uniform rate throughout the year. The value of stock salvaged was 5,800. The policy was 50,000 and was subject to the average clause. Show the amount of the claim for loss by fire. Step I Trading Account for the year ended 31 st Decembers, 1989 () () To Opening Stock 73,500 By Sales 4,87,000 To Purchases 3,98,000 By Closing Stock: 7,9600 To Gross Profit(Normal)(b.f.) 97,400 2,300 81,900 - (1) Rate of Gross Profit = 97,400/487000 100 = 20% 5,68,900 5,68,900 (2) Cost of abnormal items was 6,900. These were valued on 31st December 1988 after writing off 2,300 i.e., at 6,900 2,300 = 4,600. Note: Always find out previous year normal G.P. Ratio Because only normal G.P. Ratio can be expected to continue in current year. For this any abnormality has to be removed From purchase From opening stock From sales From closing stock Step II Memorandum Trading Account for the period 1st January to 31 st March, 1990 (at cost) Normal Abnormal Total Normal Abnormal Total Item Items Items Items To Opening Stock 75,000 6,900 81,900 By Sales 2,28,000 3,200 2,31,200 To Purchases 1,62,000-1,62,000 By Loss - 250 250 To Gross Profit 45,600-45,600 By Closing Stock 54,600 3,450 58,050 (228000 20%) At cost 2,82,600 6,900 2,89,500 2,82,600 6,900 2,89,500

Topper s Insurance Claim 2.9 Step III Statement of loss by fire () Value of closing stock Add: Abnormal goods at cost or NRV whichever is less 58,600 3,450 58,050 Less: Salvage 5,800 Loss of stock 52,250 Step IV Average Clause Claim = Amount of policy Actual loss of Value of stock 50,000 52,250 45,004 58,050 stock Working Note Cost 6,900 Less: w/o 2,300 Valued at 4,600 Working Note Abnormal cost 6,900 Sale Cost 3,450 Less: Loss 250 S.P. 3,200 Remaining Valued at Cost = 3,450 Problem 8. On 11.11.2007 the premises of Rocky Ltd. was destroyed by fire. The following information is 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

Topper s Insurance Claim 2.10 Stock 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 realise 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. Step I Find out normal G.P. Ratio of previous year. Trading A/c For the year ending 31.3.2007 [May 2008, 8 Marks] () () To Opening Stock 3,75,000 By Sales 8,55,000 To Purchases 5,20,000 By Closing Stock 2,00,000 To Gross profit (30% of sales) 1,71,000 Add: w/o 11,000 2,11,000 10,66,000 10,66,000 Step IInd Memorandum Trading A/c (upto the date of fire) (At Cost) (11.11.07) N A Total N A Total To Op. Stock (at cost) To Purchase 1,89,000 3,41,000 22,000 2,11,000 3,41,000 By Sales By G. Loss By C. Loss 4,30,000 1,86,000 5,500 5,500 11,000 4,35,500 1,97,000 To G.P. (4,30,000 20%) 86,000 (at cost) (B.fig) 6,16,000 22,000 5,52,000 6,16,000 22,000 5,52,000 Step III Statement of loss by fire () Value of closing stock immediately before fire(normal goods at cost) Add: value of abnormal items (At cost or NRV whichever is lower) Total value of stock (-) Salvage Loss by fire 1,86,000 5,500 1,91,500 (11,500) 1,80,000

Topper s Insurance Claim 2.11 Claim = Loss by fire = 1,80,000 Note: Any w/o is added back to find out normal G.P. Normal G.P. Ratio = 171000/855000 100 = 20%. Working Note Absolute stock Cost = 22,000 Sale 50% 22,000 Cost = 11,000 S.P. 5,500 Loss on sale at cost 5,500 C. Stock Valuation 50% Cost 50% 11,000 = 5,500 Problem 9. A fire occurred in the premises of M/s. Fireproof Co. on 31 st August, 2010. From the following particulars relating to the period from 1 st April, 2010 to 31 st August, 2010 you are requested 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 average clause. () (i) Stock as per Balance Sheet at 31.3.2010 99,000 (ii) Purchases 1,70,000 (iii) Wages (including wages for the installation of a 50,000 Machine 3,000) (iv) Sales 2,42,000 (v) Sale value of goods drawn by partners 15,000 (vi) Cost of goods sent to consigness on 16 th August, 16,500 2010, lying unsold with them (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. [Nov-2011]

Topper s Insurance Claim 2.12 Step I GP Ratio 20% Memorandum Trading A/c (upto the date of fire) (At Cost) (1.4.10 to 31.8.2010) N A Total N A Total To Op. Stock (99+1) To Purchase To Wages To G.P. (24,000 20%) 95,000 1,70,000 47,000 48,000 5,000 1,00,000 1,70,000 47,000 2,40,000 12,000 2,000 500 2,42,000 Step III By Sales By Loss By drawing of goods at cost 15,000 80% By Cost of goods sent to consigned By Free sample By C. Loss 16,500 1,500 90,000 2,500 92,500 3,60,000 5,000 3,34,500 3,60,000 5,000 3,34,500 Value of closing stock Normal 90,000 Abnormal 2,500 Less: Salvage Loss by fire Sum insured = 60,000 Average clause will apply Statement of loss by fire () 92,500 (20,000) 72,500 Step IV Average Clause Claim = Amount of policy Actual loss of Value of stock stock Working Note: 60,000 = 72,500 47, 027 92,500 Slow moving goods cost = 5,000 Sale Cost 2500 Less: Loss 500 S.P. 2000 Remaining Valued at Cost = 2500 Valuation at cost = 2500

Topper s Insurance Claim 2.13 Problem 10. 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, 2011. (1) Stock as per Balance Sheet as on 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. (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. [May- 2011] 5 Marks Step I GP Ratio 20% Step II Memorandum Trading A/c () () To Opening Stock To Purchase (170-30) To Wages (50000-3000) To Gross Profit (225500+16500) 20% 95,600 1,40,000 47,000 48,400 By Sales normal 2,25,500 -on approval 16,500 By goods send on approval not yet sold (at cost) By closing stock 2,42,000 26,400 62,600 3,31,000 3,31,000 Working Note: Total Sales 2,75,000 On approval received 49500 Normal 2,25,500 Approval received Approval not received 1 49,500 = 16,500 2 49,500 = 33,000 3 3 Valued at cost 33,000 80%= 26,400

Topper s Insurance Claim 2.14 Step III Value of closing stock Less: Salvage Loss by fire immediately before fire Statement of loss by fire () 62,600 (12,300) 50,300 Step IV Average Clause Claim = Value of Amount of policy lossbyfire stockimmediatelybefo refire 60,000 = 50,300 48, 211 62,600 Problem 11. A fire accrued in the premises of M/s. Fireprone Co. on 30th May 1992. From the following particulars, relating to the period from 1st January 1992 to 30th May 1992, you are required to ascertain the amount of claim to be filled with the insurance company for the loss of stocks; (all figures in rupees) (1) Stock as per Balance Sheet at 31 st December 1991 is 99,000 (2) Purchases (including purchase of a machinery costing 30,000)1,70,000 (3) Wages (including wages for the installation of machinery 3,000) 50,00 (4) Sales (including goods sold on approval basis amounting to 49,500, No confirmation had been received in respect of two-thirds of such goods sold on approval basis), 2,75,000. (5) Sales value of goods drawn by partners, 15,000 (6) Cost of goods sent to consignees on 15 th May 1992, lying unsold with them, 16,500 (7) Sales value of goods distributed as free samples, 1,500. The average rate of gross profit was 20% in the past. The selling price was increased by 20% with effect from 1st January 1992. For valuing the stock for the Balance Sheet as at 31 st December 1991 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. Subject to the above exceptions, the gross profit 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. Step I Since there is change in S.P. therefore current year G.P. ratio will be received Sale price Cost Past Yr. 100 80 Current Yr. 120 80

Topper s Insurance Claim 2.15 G.P. 20 40 G.P. Ratio Step II To Opening Stock To Purchases 1,70,000 (-) (30,000) (figure includes 30,000 for machinery) To Wages (3,000 for installation of machinery) To Gross Profit (33 1/3% on sales) (223500+16500) 1/3 20 100 100 = 20% 40 100 120 = 33.33 or 1/3 Memorandum Trading Account for the period 1 st January to 31 st May, 1992 Normal items 95,000 1,40,000 47,000 Abnorm al items Total () 5,000 1,00,000 1,40,000 47,000 By Sales At shop On approval By goods loss By free sample By cost with customer By goods drawing (15000 2/3) By goods sent to consignee By closing stock at cost Normal items 2,23,500 16,500 1,000 22,000 10,000 16,500 72,500 Abnormal items Total () 80,000 80,000 3,62,000 5,000 3,67,000 3,62,000 5,000 3,67,000 2000 500 2,500 225500 75,000 Step III Value of closing stock Add: Abnormal (-) Salvage Loss by fire Step IV Average Clause Claim = Statement of loss by fire Amount of policy Actual loss of stock Value of stock () 75,000 2,500 75,000 25,000 50,000 60,000 = 50,000 40, 000 75,000

Topper s Insurance Claim 2.16 Working Note: Total Sales 2,75,000 On approval received At shop Approval received Not Approved Normal Abnormal 16,500 2 49,500 = 33,000 3 At cost 2 33,000 = 22,000 3 Loss=500 Problem 12. A fire occurred on 1 st October, 1991 in the premises of X Co. Ltd. From the following figures, calculate the amount of claim to be lodged with the insurance company for loss of stock: (all figures in rupees) Stock at cost on 1.1.1990 90,000 Purchases from 1.1. 1991 to 30.9.1991 6,00,000 Stock at cost on 1.1.1991 70,000 Sales during 1990 6,00,000 Purchases during 1990 4,00,000 Sales from 1.1. 1991 to 30.9.199 8. 8, 80,000 You are informed that: (a) In 1991 the cost of purchases has risen by 20% over the levels prevailing in 1990; (b) In 1991 the selling prices have gone up by 10% over the levels prevailing in 1990; and (c) Salvaged value is 5,000. Step I P/Y Trading A/c (1990) To Opening Stock To Purchase To Actual G.P. (b/f) () () 90,000 By Sales 4,00,000 By Closing Stock 1,80,000 1,80,000 P/y G.P Ratio = 100 30% 6,00,000 6,00,000 70,000 6,70,000 6,70,000

Topper s Insurance Claim 2.17 Working Note.2 Revision of G.P. Ratio P/Y c/y sales Pur. in c/y Opening stock S.P. Less : PurchaseCost 100 70 110 84 110 70 G.P. 30 26 40 G.P. Ratio 30/100 100=30% 26/110 100 = 23.63% 40/110 100 = 36.36% Step IInd Memorandum Trading A/c Op. Stock C.y. pur. Total Op. Stock C.y. pur. Total To Opening stock To Purchase 70,000 - - 6,00,000 70,000 6,00,000 By Sales(WN) By C. stock 1,10,000 Nil 7,70,000 12,000 8,80,000 12,000 To G.P. 40,000 1,82,000 2,22,000 1,10,000 7,82,000 8,92,000 1,10,000 7,82,000 8,92,000 Step III Value of stock on date (-) Salvage Loss by fire of fire Statement of loss by fire () 12,000 (5,000) 7,000 Since no sum insured is given, Claim = loss by fire = 7,000 Working Note :- Assuming FIFO basis of stock Price is used (at last) 1. Sales of opening stock will be firstly 2. Then c/y purchase will be sold Sales = 8,80,000 Sale of Opening Stock Cost = 70,000 sale of c.ypurchased S.P= 8,80,000-1,10,000=7,70,000 Gross Profit = 70,000 40/70 = 40,000 G.P. = 770000 26/110 = 182000 Sales = 1,10,000 Problem 13. On 15 th 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 01-04-2012 to 15-12-2012 amounted to 13,20,000 and the sales during that

Topper s Insurance Claim 2.18 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. [May-2013, 5 Marks] 1. Past year G.P. ratio = 20% on sales 2. Memorandum Trading A/c for the period 1.4.2012 to 15.12.2012 () () To Opening Stock To Purchase 9,40,000 13,20,000 By Sales By Closing stock (Balance figure) 20,25,000 6,40,000 To Gross profit (20,25,000 20%) 4,05,000 26,65,000 26,65,000 3. Statement of Loss by fire Value of stock immediately before fire Less:- Salvage () 6,40,000 1,40,000 Loss of fire 5,00,000 4. Since sum insured 4,00,000 is less than value for stock on date of fire, therefore Average clause will apply. Sum Insured Claim = Lossby fire Value of Stock ondateof fire 4,00,000 = 5,00,000 6,40,000 = 3,12,500 Problem 14. 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, 2011 Cost of stock on 31 st March, 2012 Purchases during the year ended 31 st March, 2012 Purchases from 18 th April, 2012 to the date of fire Cost of goods distributed as samples for advertising from 1 st April, 2012 to the date of fire Cost of goods withdrawn by trader for personal use from 1 st April, 2012 to the date of fire Sales for the year ended 31 st March, 2012 Sales from 1 st April, 2012 to the date of fire () 7,10,500 7,90,100 56,79,600 33,10,700 41,000 2,000 80,00,000 45,36,000

Topper s Insurance Claim 2.19 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. [Nov.-2012, 8 Marks] 24,00,000 Gross profit Ratio = 30% 80,00,000 Trading A/c For the year ended 31-3-2012 Particular () Particular () To Opening Stock To Purchase 7,10,500 56,79,600 By Sales By Closing Stock 80,00,000 7,90,100 To Gross Profit (B/f) 24,00,000 87,90,100 87,90,100 Memorandum Trading A/c from 1-4-12 to Date of fire Particular () Particular To Opening Stock 7,90,000 By Sales 45,36,000 To Purchase 33,10,700 (-) Sample (41,000) By Stock on the Date of Fire 8,82,600 (-) Drawing (2,000) 32,67,700 (B/f) To Gross Profit (45,36,000 30%) 13,60,800 54,18,600 54,18,600 Calculation of Insurance Claim Stock on the Date of fire 8,82,600 Less: Salvage stock 1,08,000 Loss of stock due to fire 7,74,600 Add: Fire fighting Expense 4,700 7,79,300 Note: Fire fighting Expenses will be added in Gross Loss by fire then Average clause will apply. Since, Policy Amount 9,00,000, full claim will be admitted by Insurance Company. Problem 15. A fire occurred in the premises of M/s Kailash & Co. on 30 th September 2013. 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. 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 5,000) 75,000 (iv) Sales 3,10,000

Topper s Insurance Claim 2.20 (v) Goods taken by the proprietor (Sale Value) 25,000 (vi) Cost of goods sent to Consignee on 20 th September 2013, lying unsold with them 18,000 (vii) Free Samples distributed - Cost 2,500 [Nov.-2014, 8 Marks] (i) Average rate of gross profit = 20% Memorandum Trading A/c for the year ended on 30 th September 2013 To opening stock To purchase To wages To Gross profit (310000 20%) 1,20,000 2,40,000 70,000 62,000 By sales By cost of goods drawn (25000 80%) By cost goods sent to consignee Bt free samples 3,10,000 20,000 18,000 2,500 1,41,500 By closing stock (balancing figure) 4,92,000 4,92,000 Value of stock immediately before fire Less: Salvage Loss by fire Claim = loss by fire sum insured/ value of stock = 1,14,500 75,000/1,41,500 Statement of loss by fire 1,41,500 27,000 1,14,500 60,689 Problem 16. On 20 th October, 2009, the godown and business premises of Aman Ltd. were affected by fire. From the salvaged accounting records, the following information is available: Stock of goods @ 10% lower than cost as on 31 st March, 09 Purchases less returns (1.4.09 to 20.10.09) Sales less returns (1.4.09 to 20.10.09) Additional information: (1) Sales upto 20 th October, 09 includes Rs.80,000 for which goods had not been dispatched. (2) Purchases upto 20 th October, 09 did not include 40,000 for which purchase invoices had not been received from suppliers, though goods have been received in Godown. (3) Past records show the gross profit rate of 25%. (4) The value of goods salvaged from fire 31,000. (5) Aman Ltd. has insured their stock for 1,00,000. Compute the amount of claim to be lodged to the insurance company. 2,16,000 2,80,000 6,20,000 [P.M. Page 13.4]

Topper s Insurance Claim 2.21 Problem 17. On 1 st April, 2016 the stock of Mr. Hariprasad was destroyed by fire but sufficient records were saved from which following particulars were ascertained: Stock at cost 1 Jan. 2015 1,47,000 Stock at cost 31 Dec. 2015 1,59,200 Purchases year ended 31 Dec.2015 7,96,000 Sales year ended 31 Dec. 2015 9,74,000 Purchases 1-1-2016 to 31-3-2016 3,24,000 Sales 1-1-2016 to 31-3-2016 4,62,400 In valuing the stock for the Balance Sheet at 31 st Dec. 2015 4,600 had been written off on certain stock which was a poor selling line having the cost 13,800. A portion of these goods were sold in March2016 at a loss of 500 oil original cost of 6,900. 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 11,600. The policy was for 1,00,000 and was subject to average clause. Work out the amount of the claim of loss by fire. [Nov-2016, 8 Marks] Trading Account for 2015 (to determine the rate of gross profit) To Opening Stock To Purchase To Gross Profit 1,47,000 By Sales A/c 9,74,000 7,96,000 By Closing Stock: 1,94,800 As valued 1,59,200 Add: Amount written off to restore stock to full cost 4,600 1,63,800 11,37,800 11,37,800 1,94,800 The (normal) rate of gross profit to sale is = 100% = 20% 9,74,000 Memorandum Trading Account upto March 31, 2016 To Opening Stock (1,59,200 + 4,600 13,800) To Purchases To Gross Profit (20% on 4,56,000) Normal Items Abnormal Items Total Normal Items Abnormal Items 1,50,000 13,800* 1,63,800 By Sales 4,56,000 6,400 By Loss - 500 Total Items 4,62,400 500 3,24,000-3,24,000 By Closing Stock (bal. fig.) 1,09,200 6,900 1,16,100 91,200 91,200 5,65,200 13,800 5,79,000 5,65,200 13,800 5,79,000 * at cost, book value is 9,200

Topper s Insurance Claim 2.22 Calculation Of Insurance Claim Value of Stock on April, 1, 2016 1,16,100 Less: Salvage (11,600) Loss of stock 1,04,500 Claim subject to average clause: Amount of Policy Actual loss of Stock Value of Stock 1,00,000 1,04,500 1,16,100 Rs. 90,008.60 ( or rounded off to 90,009) Alternative solution Trading account for the year ended 31.12.2015 To Opening Stock To Purchases 7,96,000 Less: Abnormal Item 13,800 To Gross Profit 1,47,000 By Sales A/c 9,74,000 By Closing Stock: 7,82,200 As Valued 1,59,200 Less: Abnormal Item 9,200 1,50,000 1,94,800 11,24,000 11,24,000 1,94,800 The (normal) rate of gross profit to sale is = 100% = 20% 9,74,000 Trading Account for the period from 1.1.2016 to 31.3.2016 To Opening stock To Purchases To Gross Profit Normal Abnormal Normal Abnormal 1,50,000 9,200 By Sales 4,56,000 6,400 3,24,000 - By Closing Stock 1,09,200 6,900 91,200 4,100 5,65,200 13,300 5,65,200 13,300 Stock as on 1.4.2016 Normal Stock 1,09,200 Abnormal Stock Considered as normal now 6,900 Total Stock 1,16,100 Less: Salvage Stock 11,600 Loss of stock 1,04,500 Claim of insurance 1,04,500 / 1,16,100 1,00,000 90,008.60 or 90,009

Topper s Insurance Claim 2.23 Note: Stock Value is more than the amount of policy taken. Hence, the average clause shall be applied while making the claim of insurance. Problems on Loss of Profit Policy Problem 18. Form the following data, compute a consequential loss claim: 1. Financial year ends on 31 st December, Turnover 2,00,000 2. Indemnity period 6 months, Period of interruption 1st July to 31 st October., 3. Net profit 18,000. 4. Standing charges 42,000 out of which 10,000 have not been insured. 5. Sum assured 50,000. 6. Standard turnover 65,000 7. Turnover in the period of interruption 25,000 out of which 6,000 was from a rented place at 600 per month. 8. Annual turnover 2,40,000. Saving in standing charges 4,725 per annum. Date of fire night of 30 th June. It was agreed between the insured that the business trends would lead to an increase of 10% in the turnover. Period of claim Standard turnover Add: Trends in sales (65000 10%) Adjusted turnover Less: Actual turnover Short Sales (a) Gross profit Ratio (b) (w.n 1) Loss of profit a b (46500 25%) Add: Allowed additional Exp. (w.n 2) 4,725 Less: Reduction in standing charges During the period of claim 4 12 Total Loss Insurance Claim = Total loss Sum insured/ GP on A.A.T 50,000 11,550 8,750 66,000 4 months 65,000 6,500 71,500 25,000 46,500 25% 11,625 1,500 (1,575) 11,550 Working Note 1: GP Ratio= NP + Insured Standing charges/previous year turnover 100 = 18,000 + 32,000/2,00,000 100 = 25% Working Note 2: Allowed Additional Exps. Minimum of the following three (i) Actual Additional Exps. = 600 4 month = 2,400

Topper s Insurance Claim 2.24 (ii) GP on additional sales generated due to such additional expenses = 6,000 25% = 1,500 (iii) G. P. onaat Additional Actual Exp. ( G. P. onaat uninsured S tan ding 66000 = 2,400 2084 60000 10000 Charg es) Working Note 3: Adjusted annual turnover Annual turnover + Trends in sales 10% Adjusted annual turnover (AAT) GP Ratio = 25% GP on AAT (264000 25%) Sum Insured If Sum insured is less than GP on AAT then average clause will apply 2,40,000 2,400 2,64,000 66,000 50,000 Problem 19. The premises of X Y Ltd. were partially destroyed by fire on. 1.3.1992 and as a result, the business was partially disorganized upto 31.8.1992. The company is insured under a loss of profit policy for 1,65,000 having an indemnity period of 6 months. From the following information, prepare a claim under the policy. (i) Actual turnover during the period of dislocation (1.3.1992 to 31.8.1992) 80,000 (ii) Turnover for the corresponding period (dislocation) (1.3.1991 to 31.8.1991) 2,40,000 (iii) Turnover for 12 months immediately preceding the fire (1.3.1991 to 28.2.1992) 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 upto 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. Annual Turn = 6,00,000 1.1.92 P.Y.T=5,00,000 1.3.92 31.8.92 Actual T= 80,000

Topper s Insurance Claim 2.25 Period of claim Standard turnover Add: Trends in sales (2,40,000 10%) Adjusted turnover Less: Actual turnover Short Sales (a) Gross profit Ratio (b) (w.n 1) Loss of profit a b (184000 30%) Add: Allowed additional Exp. (w.n 2) Less: Reduction in standing charges During the period of claim Total Loss Insurance Claim = Total loss Sum insured/ GP on A.A.T 1,65,000 60,000 50,000 1,98,000 Amount 6 months 2,40,000 24,000 2,64,000 (80,000) 1,84,000 30% 55,200 7,500 (2,700) 60,000 50,000 Working Note 1: GP = NP + Insured Standing charges/previous year turnover 100 90,000 60,000 = 100 30% 5,00,000 Working Note 2: Allowed Additional Exps. Minimum of the following three (i) Actual Additional Exps. = 9,300 (ii) GP on additional sales generated due to such additional expenses (80,000 55,000) = 25,000 30% = 7,500 (iii) Additional Actual Exp. ( G. P. onaat G. P. onaat uninsured S tan ding Charg es) 198000 = 9,300 9, 071 198000 5000 Working Note 3: Adjusted annual turnover Annual turnover + Trends in sales 10% Adjusted annual turnover (AAT) GP Ratio = 30% GP on AAT Sum Assured = If Sum insured is less than GP on AAT then average clause will apply 6,00,000 60,000 6,60,000 1,98,000 1,65,000

Topper s Insurance Claim 2.26 Problem 20. On account of a fire on 15 th June, 2002 in the business house of a company, the working remained disturbed up to 15 Dec., 2002 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 increase of 25% was marked in the current year's sales as compared to 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. Ascertain the claim under the consequential loss policy keeping following additional information in view: () Actual sales from 15 th June, 2002 to 15 Dec., 2002 70,000 Sales from 15 th June, 2001 to 15 Dec., 2001 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, 2001 to 15 June, 2002 5,60,000 [Nov 2003, 9 Marks] Period of claim Standard turnover Add: Trends in sales Adjusted turnover Less: Actual turnover Short Sales (a) Gross profit Ratio (b) (w.n 1) (2,30,000 25%) Loss of profit a b Add: Allowed additional Exp. (w.n 2) Less: Reduction in standing charges During the period of claim Total Loss Insurance Claim = Total loss Sum insured/ GP on A.A.T 1,40,000 64,833 51,866 1,75,000 Amount 6 months 2,40,000 60,000 3,00,000 (70,000) 2,30,000 25% 57,500 9,333 (2,000) 64,833 Working Note 1: GP = NP + Insured Standing charges/previous year turnover 100 80,000 70,000 100 25% 6,00,000 Working Note 2: Allowed Additional Exps. Minimum of the following three (i) Actual Additional Exps.= 12,000 (ii) GP on additional sales generated due to such additional expenses 70,000 25% = 17,500

Topper s Insurance Claim 2.27 (iii) Additional Actual Exp. G. P. onaat ( G. P. onaat uninsured S tan ding Charg es) 175000 12,000 9,333 175000 50000 Note: If nothing specified always assume total actual sales in additional sales. Working Note 3: Adjusted annual turnover Annual turnover + Trends in sales (25% 560000) Adjusted annual turnover (AAT) GP Ratio = 25% GP on AAT (700000 25%) Sum Assured = If Sum insured is less than GP on AAT then average clause will apply 5,60,000 1,40,000 7,00,000 1,75,000 1,40,000 Problem 21. From the following details, calculate consequential Loss of 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; 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 12,000 with a saving in insured standing charges 4,500 during the disruption period; 13. Reduction in turnover avoided through increase in working cost 30,000; 14. Special clause stipulated: (a) Increase in rate of G. P. 2% (b) Increase in turnover (Standard and Annual) 10%. [Nov 2008, 8 Marks] Annual turnover = 6,60,000 Period of claim Standard turnover Add: Trends in sales (10% 2,25,000) Adjusted turnover Less: Actual turnover Short Sales (a) Gross profit Ratio (b) (W.N 1) Amount 5 months 2,25,000 22,500 2,47,500 67,500 1,80,000 20%

Topper s Insurance Claim 2.28 Loss of profit (1,80,000 20%) 36,000 Add: Allowed additional expense 6,000 (4,500) Total Loss 37,500 Insurance Claim = Total loss Sum insured/ GP on A.A.T 1,08,900 28,125 37,500 1,45,200 Working Note 1: N. P. Insured S tan ding Charg es GP 100 Pr eviousyear turnover 36,000 72,000 100 18% 6,00,000 Add: Increase in Rate of G.P. = 2% 20% Working Note. 2 Allowed Additional Expense, minimum of the following three (i) Actual Additional Expense= 12,000 (ii) G.P. on additional sales generated due to such additional expenses = 30,000 20% = 6,000 (iii) Additional Actual Exp. ( Uninsured G. P. on AAT s tan ding ch arg es) G. P. on AAT 1,45,200 = 12,000 11, 524 1,45,200 6,000 Working Note. 3 Adjusted annual turnover Annual turnover + Trends in sales (10%) Adjusted annual turnover (AAT) GP Ratio = 20% GP on AAT Sum Assured = If Sum insured is less than GP on AAT then average clause will apply 6,60,000 66,000 7,26,000 1,45,200 1,08,000 Problem 22. A loss of profit policy was taken for 80,000. Fire occurred on 15th March, 1989. Indemnity period was for three months. Net profit for 1988 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:

Topper s Insurance Claim 2.29 Sales 1986 () 1987 () 1988 () 1989 () 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 From 1st July to 30th 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 Sales from 16.3.1988 to 31.3.1988 were 28,000 Sales from 16.3.1989 to 31.3.1989 were Nil Sales from 16.6.1988 to 30.6.1988 were 24,000 and Sales from 16.6.1989 to 30.6.1989 were 6,000. Statement Showing Loss of Profit () Period of claim 3 Months (a) Standard Sales 1,04,000 Add : Increase in trend 10% 10,400 Adjusted Standard Sales 1,14,400 (b) Actual Sales of the indemnity period, 34,000 Short Sales (a -b) 80,400 Loss of Profit = Short Sales Gross Profit ratio = ( 80,400 20%) 16,080 Add : Allowed Additional expenses Nil Less : Saving in insured standing Charges Nil Total Loss 16,080 Net Claim = Gross Claim = 16,080 80,000/1,19,680 = 10,749 (i) Actual turnover (15.3.89 to 15.6.89) Turnover from 1.4.89 to 30.6.89 40,000 + 16.3.89 to 31.3.89 Nil - 16.6.89 to 30.6.89 (6,000) 34,000 (ii) Standard turnover (15.3.88 to 15.6.88) Turnover from 1.4.88 to 30.6.88 1,00,000 + 16.3.88 to 31.3.88 28,000-16.6.88 to 30.6.88 (24,000) 1,04,000 (iii) Trends in Sales Compare some part year sales 86 87 88 4,36,000 4,80,000 5,28,000 44,000 10.09% 48,000 10% Average = 10.045% or 10%

Topper s Insurance Claim 2.30 Working Note.1 N. P Insured S tan ding Charg es 1. G.P. rate = 100 Previous year turnover 56,000 49,600 = 100 = 20% 5,28,000 Working Note.2 Annual turnover (16.3.89 to 15.3.89) Turnover 1.4.88 to 31.3.89 (1,00,000 + 1,20,000+1,66,000+1,30,000) 5,16,000 + 16.3.88 to 31.3.88 28,000-16.6.88 to 30.6.88 Nil 5,44,000 Working Note. 3 Adjusted annual turnover Annual turnover + Trends in sales 10% Adjusted annual turnover (AAT) GP Ratio = 20% GP Sum Assured = Since Sum insured is less than GP on AAT then average clause will apply 5,44,000 54,400 5,98,400 1,19,680 80,000 Problems on Combine Question of Loss of Stock and Loss of Profit Problem 23. S and M Ltd. give the following Trading and Profit and Loss Account for the year ended 31st Dec. 1984. () () To Opening Stock 50,000 By Sales 8,00,000 To Purchase 3,00,000 By Closing Stock 70,000 To Wages ( 20,000 for skilled workers) 1,60,000 To Manufacturing Expenses 1,20,000 To Gross Profit 2,40,000 8,70,000 8,70,000 () () To Office Administration 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

Topper s Insurance Claim 2.31 The company had taken out policies both against loss of stock and against loss of profit, the amounts being 80,000 and 1,72,000. Fire occurred on 1 st May 1985 and as a result of which sales were seriously affected for the period of 4 months. You are given the following further information: (a) Purchases, wages and other manufacturing expenses for the first 4 months of 1985 were 1,00,000; 50,000 and 36,000 respectively. (b) Sales for the same period were 2,40,000. (c) Others sales figure were as follows: From 1.1.1984 to 30.4.1984 3,00,000 From 1.5.1984 to 31.8.1984 3,60,000 From 1.5.1985 to 31.8.1985 60,000 (d) Due to rise in wages net profit during 1985 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. A. Claim for Loss of stock Dr. Memorandum Trading Account for the period from 1 st Jan. to 1 st May 1985 Cr. () () To Opening Stock 70,000 By Sales 2,40,000 To Purchases 1,00,000 By Closing Stock (bal. fig.) 83,200 To Wages 50,000 To Manufacturing Expenses 36,000 To Gross Profit @ 28% on Sales 67,200 3,23,200 3,23,200 Claim for Loss of stock will be 80,000 (i.e., the amount of policy and not more). * G. P. of 1984 = 30% - 2% decrease = 28% B. Loss Of Profit policy 1.5.84 = 3,00,000 31.8.89 = 3,60,000 1.5.85 = 2,40,000 60,000 Decline by 20% 31.8.85 = 6,00,000 60,000 Trend in Sales = 100 = 20% decline 3,00,000 Working Notes.1 NP Insured S tan ding Charg es GP = 100 Previous year turnover 56,000 1,20,000 = 100 = 22%- 2% = 20% AGR 8,00,000

Topper s Insurance Claim 2.32 Period of claim Standard turnover Less: Dec. in trend (20% 3,60,000) Adjusted turnover Less: Actual turnover Short Sales (a) Gross profit Ratio (b) (W/N 1) Loss of profit (a b) = (2,28,000 20%) Add: Allowed additional expense (W/N 2) Less: Reduction in standing charges during period of claim Total Loss Insurance Claim = Total loss Amount 4 months 3,60,000 72,000 2,88,000 60,000 2,28,000 20% 45,600 12,000 Nil 57,600 57,600 Working Notes.2 Allowed additional exps. Minimum of the following three:- (i) Actual additional expense = 1,40,000 (ii) G.P. on additional sales generated due to such addition expense = 60,000 20% = 12,000 G. P. on AAT (iii) Additional expense ( Uninsured s tan ding ch arg es G. P. on AAT ) 1,18,400 = 1,40,000 = 1,19,769 1,18,400 20,000 Working Note. 3 Adjusted annual turnover Annual turnover + Trends in sales (7,40,000 20%) Adjusted annual turnover (AAT) GP Ratio (20%) GP on AAT Sum Assured = Since, sum insured is more than GP on AAT, average clause will not apply 7,40,000 1,48,000 5,92,000 1,18,400 1,72,000 Working Note.4 Annual turnover 1.5.84 to 30.4.84 P.yr. Turnover 1.4.84 to 31.3.84 8,00,000 + 1.1.85 to 30.4.85 2,40,000-1.1.84 to 30.4.84 (3,00,000) 7,40,000 Problem 24. Sony Ltd. Trading and Profit and Loss Account for the year ended 31st Dec. 1993 is as follows :

Topper s Insurance Claim 2.33 Trading and Profit and Loss Account for the year ended 31 st December 1993 () () To Opening Stock 20,000 By Sales 10,00,000 To Purchases 6,50,000 By Closing Stock 90,000 To Manufacturing Exp. 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 profit policy for 1,00,000 having an indemnity period of 6 months. A fire occurred on 1.4.1994 at the premises and the entire stock were gutted with nil salvage value. The net quarter sale i.e., 1.4.1994 to 30.6.1994 was severely affected. The following are the other information : Sales during the period 1.1.94 to 31.3.94 2, 50,000 Purchase during the period 1.1.94 to 31.3.94 3,00,000 Manufacturing Expenses 1.1.94 to 31.394 70,000 Sales during the period 1.4.94 to 30.6.94 87,500 Standing charges insured 50,000 Actual expenses incurred after fire 60,000 The general trend of the industry shows an increase in sales by 15% and decrease in G. P. by 5% due to increased costs. Ascertain the claims for loss of stock and loss of profits. [C. A. (Inter), Nov. 1994] Dr. In the books of Sony Ltd. Trading Account (from 1.1.1994 to 31.3. 1994) Cr. () () To Opening Stock 90,000 By Sales 2,50,000 To Purchases 3,00,000 By Closing Stock (bal. fig.) 2,60,000 To Manufacturing Expenses 70,000 To Gross Profit(25%-5% =20% on Sales) 50,000 5,10,000 5,10,000 * Amount of claim for stock lost by fire is 2,60,000. B. 2,17,391 10,00,000 = 1.4.93 31.6.93 31.12 = 2,50,000 1.4.94 = 100 = 2,50,000 115 30.6.94 = AT = 87,500 Working Note.1 P.yr. Turnover for 12 Months 10,00,000 Less: Turnover for first quarter

Topper s Insurance Claim 2.34 100 2,50,000 2,17,391 115 Turnover from 1.4.93 to 31.12.93 7,82,609 (9 Month) Turnover for 3 Months from 1.4.93 to 30.6.93 2,60,870 (Standard turnover) Period of claim Standard turnover(w/n.1) + Trend in Sales 15% Adjusted Standard turnover Less: Actual turnover Short Sales Adjusted G.P. Ratio Loss of profit (2,12,500 5%) Allowed additional expense Less: Saving in Insured Standing Charges Total Loss Claim = Total loss Working Notes.2 Statement of claim Amount 3 months 2,60,870 39,130 3,00,000 87,500 2,12,500 5% 10,625 4,375 Nil 15,000 15,000 N. P. Insured S tan ding Charg es G.P. ratio = 100 p. y. Turnover 50,000 50,000 = 100= 10% 10,00,000 Less: Decrease in G.P. Ratio 10% Adjusted G.P. Ratio 5% 5% Working Note.3 Allowed additional expenses, minimum of following three:- (i) Actual additional expense = 60,000 (ii) G.P. Ratio Additional sales generated due to additional expense = 5% 87,500 = 4,375 (iii) Additional expense 59,375 60,000 60,000 59,375 0 Working Note.4 G. P. on AAT ( Unisured S tan ding Charg es G. P. on AAT ) Annual turnover (1.4.93 to 31.3.94) Turnover from1.4.93 to 31.12.93 7,82,609