Insurance Claim For Loss of Stock and Loss of Profit

Transcription

1 Insurance Claim For Loss of Stock and Loss of Profit Insurance Claim Loss of Stock. Loss of Profit (Consequentia l Loss). Calculation of Loss of Profit. Insurance Contract is contract of indemnity. Under this contract an insurance company indemnifies the loss of property due to some reasons like fire, flood etc. After the occurrence of loss (due to fire etc) organization has to estimate its loss & lodge a claim before insurance company. Some times, there is a fire accident and there is the loss of stock. If such stock in insured then the Insurance Company indemnify the party. The stock on the date of fire is determined by preparing a Trading Account till the date of fire. After determine the value of stock as the date of fire, the value of salvaged (saved) stock is computed, and then, amount of loss of stock is calculated as under: Value of stock on the date of fire Less: Value of salvaged stock Amount of loss of stock CLAIM FOR LOSS OF STOCK: (a) Total Loss: If the goods are totally destroyed, the amount of claim is equal to the actual loss, provided the goods are fully insured. (b) Partial loss: In this case the amount of claim is equal to the actual loss provided the goods are fully insured. In case of under insurance with average clause, insurer is treated as co insurer for the part not insured. To determine the amount of claim loss of stock is proportionately reduced, considering the ratio of policy amount (i.e., insured amount) to the value of stock as the date of fire (i.e., insurable amount) as shown below: Amount of claim = Loss of stock Sum Insured. Insurable Amount Besides, loss of assets, fire results in dislocation of the businesses. If affects production, sales & consequently profits during dislocation period while standing (fixed) charges of the businesses like rent, salaries, interest, rates & taxes. Insurance premium continue to be the same. Sometimes, the businesses may be required to incur additional cost to continue businesses operation temporarily during the dislocation period. A separate policy called consequential loss policy of Loss of Profit is necessary to insure against such losses. It normally covers loss of net profit, non recovery of standing charges & any increased cost of working i.e., renting of temporary businesses. Along, A separate policy is required for this purpose, but the claim in respect of this policy is admitted provided the claim for loss of property as a result of the fire is also admitted. For calculation of claim under this policy the following points are considered: 1. Period of claim is the indemnity period specified in the policy or dislocation period, Whichever is lower. 2. Gross Profit:- The sum produced by adding to net profit, the amount of insured standing charges or, if there be no net profit, the amount of Insured Standing Charges less such a proportion of any net trading loss as amount of Insured standing charges bears to all standing charges of business. 3. Net Profit:- The net trading profit (exclusive of all capital) receipts and accretion and all outlay properly (chargeable to capital) resulting from business of insured at premises after due provision has been made for all standing and other charges including depreciation. Statement of Claim Particulars Rs Sales from to Add:- Adjustment of Trends Standard Sale Actual Sales of dislocated period Short Sale X Gross Profit Ratio Working Note 1 Loss of Gross Profit ±Increased Cost of Working Working Note 2 Gross Claim Less:- Saving in Insured Standing Charges Gross Claim Working Note 1:- Net Profit + Insured Standing Ch. * 100 Sales Gross Profit Ratio =?%

2 Working Note 2:- Increased Cost of Working Lower of the Following :- Actual Exp Given =60,0 Gross Profit on sale due to additional exp. Sale GP ratio NP + Insured Standing Ch. Increased Cost of working NP + All Standing Ch. Calculation of Annual Turnover Turnover for 12 months immediately preceding the month of fire 48,00,0 Add: Trend increase Annual Turnover 48,00,0 Gross Profit on Annual 30% 14,40,0 Net Claim to be Received Average Clause Gross Claim Policy Taken GP on Annual Turnover Indemnity Period. Annual Turnover Standard Turnover. Average Clause. Insured Standing Charges & The period for which loss is to be calculated is called period of indemnity this is the lower of following:- 1- Actual period of dislocation 2- Period covered by policy. Annual turnover is turnover during twelve months immediately before the date of damage. Standard turnover is the turnover during that period in twelve months immediately before date of damage which is corresponds to indemnity period. In order to discourage under insurance, fire insurance policies often include an average clause. The effect of these clause is that if the insured value of the subject matter concerned is less than the total cost then the average clause will apply, that is, the loss will be limited to that proportion of the loss as the insured value bears to the total cost. The actual claim amount would therefore that be determined by the following formula: Claim = Insured Value Loss Suffered Total Stock For example, if stock worth Rs. 4 lakhs is insured for Rs. 3 lakhs only, and the loss amounts to be Rs. 1,80,000, the claim admitted by the insurer will be Rs. 1,80,000 3,00,000 = Rs. 1,35,000. 4,00,000 The average clause applies only when the insured value is less than the total value of the insured subject matter. Interest on Debentures, Mortgage Loans and Bank Overdrafts, Rent Rates and Taxes (other than taxes which form part of net profit) Salaries of permanent Staff and Wages to Skilled Employees, Boarding and Lodging of resident Directors / and or Manager, Directors Fees, Unspecified Standing charges [not exceeding 5% of the amount recoverable in respect of Specified Standing Charges.] Practical Problems Que. 1 A fire occurred in the premises of Mr. X on June 15, 2003 and a considerable part of the stock was destroyed. The value of the stock saved was Rs. 4,000. The books disclosed that on 1 st April, 2003 the stock was valued at Rs. 45,000; the purchases up to the date of fire amounted to Rs. 1,25,000 and the sales to Rs. 1,80,000. On investigation, it was found that during the past five years, the average gross profit on sales was 30%. You are required to prepare a statement showing the amount Mr X should claim from the insurance company in respect of stock destroyed by the fire. Que. 2 The godown of Green Ltd. caught fire on 15 th June, Records saved from fire showed the following particulars: Particulars Rs. Particulars Rs. Stock at cost on 1 st January, 2002 Stock at cost on 31 st December, 2002 Purchases less returns for the year 2002 Wages for the year ,000 84,000 5,08,000 20,000 Sales less returns for the year 2002 Purchases less returns from Jan. 1 to June 15, 2003 Sales less returns from Jan. 1 to June 15, 2003 Wages from Jan. 1 to June 15, 2003 Gross profit remained at a uniform rate. The stocks salvaged was worth Rs 7,200 and they was retained by Green Ltd. The godown was insured. Show the amount of claim. 7,20,000 1,80,000 2,46,000 16,200

3 Que. 3 On 17 th June, 2003 a fire occured in the premises of M/s C, a bookseller. Most of the stock was destroyed, with the cost of salvaged stock being Rs 11,200. In addition, some stock was salvaged in damaged condition and its value was estimated at Rs 10,400. From books of account the following particulars are available: (1) Stock at close of account on 31 st December, 2002 was valued at Rs 83,500. (2) Purchases from amounted to Rs 1,12,000 and sales during that period amounted to Rs 1,54,000. (3) On the basis of past 3 years it appears that on an average gross profit of 25% is earned on sales. (4) Stock was insured for Rs 75,000. Compute the amount of claim. Que. 4 A trader took out a fire policy containing an average clause covering his stock for Rs 15,000. His practice was base his selling price at cost plus 33 ½ %.He closes his books on 30 th June every year. On 31 st March, 2008, a fire occurred at his premises and destroyed his stock. The salvaged stock was worth Rs 6,000. During the period of 9 months preceding the fire his purchases amounted to 61,000 and sales to Rs 84,000. His stock at 1 st July, 2007 was valued at Rs 20,000. You are required to prepare a statement showing the amount of claim. Que. 5 The premises of Z. Limited were damaged due of fire on 21 st December The company made up its accounts on 30 th June, each year. On 30 th June, 2004 the stock at cost was Rs 13,272 as against Rs 9,614 on 30 th June, The purchases for full year were Rs 45,258 and that for current year up to date of fire were Rs 34,827. Corresponding sales were Rs 52,000 and Rs 29,170, respectively. In October 2004 goods costing Rs 943 were given as samples for which no entries were made. During August to November a clerk had misappropriated unrecorded cash sales. It is estimated that defalcation was at Rs 20 per week for 20 weeks. A part of stock is salvaged for Rs 300. Rate of Gross profit is constant. The policy is for Rs 18,800 with average clause. Ascertain the amount of claim. Que. 6 On 20 th July 2001, the godown and the business premises of a merchant were affected by fire. From the accounting records salvaged, the following information is made available to you: (all figures in rupees). Stock of goods on 1st April, 2000 Stock of goods at 10% lower than cost as on 31 st Mar., 01 Purchase of goods for the year from 1 st Apr. 90 to 31 st March. 01 1,00,000 1,08,000 4,20,000 Sales for the same period Purchases less returns from 1 st Apr. 01 to July 01 Sales returns for the above period 6,00,000 1,40,000 3,10,000 Sales up to 20 th July 2001 included Rs 40,000 for which goods had not been dispatched. Purchases up to 20 th July 2001 did not include Rs 20,000 for which purchases invoices had not been received from suppliers, through goods have been received at the godown. Goods salvaged from the accident were worth Rs 12,000 and these were handed over to the insured. Ascertain the value of the claim for the loss of good/stock which could be preferred on the insurer. Que. 7 The Trading Account of Das & Co. for the ending 31 st March, 2002 is given below: Particulars Rs. Particulars Rs. To Opening Stock To Purchases A/c 68,480 1,56,940 By Sales less returns By Closing stock 1,96,000 58,820 To Gross Profit c/d 29,400 2,54,820 2,54,820 A fire occurs in their godown on 31 st December, 2002 and a considerable part of the stock of readymade garments is destroyed. The salvaged stock in worth Rs The stock is fully insured against fire risks. Considering the following further particulars, prepare a statement showing the amount of claim to be lodged by Das & Co. with insurer for the loss of stock. Sales for the period ending 31 st December, 2002 are Rs 1,09,200. The amount paid for purchases in Rs 88,016 including a cheque for Rs 562 which remains unpresented to the bankers up to as shown by the books of account. Trade creditors on 31 st March 2002 amount to Rs 24,608 and on 31 st December, 2002 are Rs 22,112. Goods worth Rs 6,390 are returned to creditors during the period ending 31 st December, Que. 8 A fire occurred in the premises of Sri Rakesh on 1 st April 2003 and a considerable part of the stock was destroyed. The stock salvaged was worth Rs 1,12,000. Shri Rakesh had taken a fire insurance policy for Rs 6,84,000 to cover the loss of stock by fire. You are required to ascertain the insurance claim due from the insurance company for the loss of stock by fire. The following particulars are available: Purchases for the year 2002 Sales for the year 2002 Purchases from 1 st January 2003 to 1 st April 2003 Sales from 1 st January 2003 to 1 st April ,52,000 46,40,000 7,28,000 9,60,000 Stock on 1 st January 2002 Stock on 31 st December 2002 Wages paid during the year 2002 Wages paid during 1 st January 2003 to 1 st April ,76,000 9,68,000 4,00,000 72,000

4 Shri Rakesh had in June 2002 consigned goods worth Rs 2,00,000 which were lost in an accident. As there was no insurance the loss was borne by him in full. Stocks at end of each year for and till the end of calendar year 2001 had been valued at cost less 10%. From 2002 however, there was a change in the valuation of closing stock which was ascertained by adding 10% to its cost. Que. 9 A fire occurred on 1 st October, 2001 in the premises of Amit Co. Ltd. From the following figures, calculate the amount for claim to be lodged with the insurance company for loss of stock: Stock at cost on Stock at cost on Purchases during ,000 70,000 4,00,000 Purchases from to Sales during 2000 Sales from to ,00,000 6,00,000 8,80,000 You are informed that: (a) In 2001 the cost of purchases has risen by 20% over the levels prevailing in 2000; (b) In 2001 the selling prices have gone up by 10% over the levels prevailing in 2000; and (c) Salvaged value is Rs 5,000. Que. 10 On 1 st April 2008, the godown of India Ltd. was destroyed by fire. From the books of account, the following particulars are gathered: (all figures in rupees) Stock at cost on 1 st January 2007 Stock as per Balance Sheet at 31 st December 2007 Purchases during 2007 Purchases from 1 st January 2008 to 31 st March ,570 51,120 2,71,350 75,000 Sales during 2007 Sales from 1 st January 2008 to 31 st March 2008 Value of goods salvaged 3,51,000 91,500 6,300 Goods of which original cost was Rs 3,600 had been valued at Rs 1,500 on 31 st December These were sold in March 2008 for Rs 2,700. Except this transaction, the rate of gross profit has remained constant. On 31 st March 2008 goods worth Rs 15,000 had been received by the godown keeper, but had not been entered in the purchase Account. Calculate the value of goods destroyed by fire. Que. 11 On 15 th June 2009, the business house of Monica & Co. was destroyed by fire. The following particulars are given to you; Stock at cost 1 st January ,41,000 Sales less returns year ended ,22,000 Stock at cost 31 st December ,77,600 Purchases less returns Jan th June ,72,000 Purchases less returns year ended ,88,000 Sales less returns Jan 1-15 th June ,87,200 In valuing stock for Balance Sheet at , Rs 13,800 had been written-off on certain stock which was a poor selling line, having cost Rs 41,400. A portion of these goods was sold in March 2009 at a loss of Rs 1,500 on the original cost of Rs 20,700. The remainder of this stock is now estimated to be worth the original cost. Subject to the above exception, Gross profit remained at a uniform rate throughout. The stock salvaged from fire was valued at Rs 34,800. You are to ascertain the amount of claim to be placed. Que. 12 On 1 st April 2009, the stock of Shri Dheeraj was destroyed by fire but sufficient records were saved from which following particulars were ascertained: (all figures in rupees) Stock at cost 1 st January ,500 Sales for the year ended ,87,000 Stock at cost 31 st December ,600 Purchases from Jan. 1 to March ,62,000 Purchases for the year ended ,98,000 Sales less returns Jan 1 to March ,31,200 In valuing the stock for the Balance Sheet at 31 st December 2008, Rs 2,300 had been written-off on certain stock which was a poor selling line having cost Rs 6,900. A portion of these goods was sold in March 2009 at a loss of Rs 250 on the original cost of Rs 3,450. The remainder of this stock is 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 Rs 5,800. The insurance policy was for Rs 50,000 and was subject to the average clause. Work out the amount of the claim of loss by fire. Q.13. Mr. A prepares accounts on 30 th September each year, but on 31 st December, 2001 fire destroyed the greater part of his stock. Following information was collected from his books: Rs. Stock as on ,700 Purchases from to ,000 Wages from to ,000 Sales from to ,40,000 The rate of Gross Profit is 33.33% on cost. Stock to the value of Rs. 3,000 was salvaged, Insurance policy was for Rs. 25,000 and claim was subject to average clause. Additional Information: (i) Stock in the beginning was calculated at 10% less than cost. (ii) A Plant was installed by firm s own worker. He was paid Rs. 500, which was included in wages. (iii) Purchases include the purchase of the plant for Rs. 5,000.

5 You are required to calculate the claim for the loss of Stock. Q.14. A fire occurred in the workshop of Mr. A on 31 st March, 2006 where a large part of the stock was destroyed. Scrap realized Rs. 7,500. Mr. A gives you the following information for the period of 1 st January to 31 st March, 2006: Rs. (i) Purchases 42,500 (ii) Sales 45,000 (iii) Goods costing Rs. 1,000 were taken by Mr. A for personal use. (iv) Cost price of stock on 1 st January, 2006 was Rs.20,000. (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 Rs. 25,000. It included an average clause. Prepare a statement of claim to be made on the Insurance Company by Mr. A. Que. 15 On 1 st July 2003, a fire took place in the godown of Shyam which destroyed the stock. Calculate the amount of insurance claim for stock from the following details: Sales in 2001 Gross Profit in 2001 Sales in ,00,000 60,000 3,00,000 Stock as on Purchases from to Sales from to ,70,000 4,00,000 7,20,000 Gross Profit in ,000 The following are also to be taken into consideration: 1. Stock as on 31 st December 2002 has been undervalued by 10%. 2. A stock taking conducted in March 2003 had revealed that stock costing Rs 80,000 was lying in a damaged condition 50% of this stock was sold in May 2003 at 50% of cost and the balance was expected to be sold at 40% of cost. Que. 16 On 30 th September 2003 the stock of Mr Dilip was lost in a fire accident. From the records, the following information is made available to enable you to prepare a statement of claim on the insurers: Stock at cost on 1 st April 2002 Stock at cost on 31 st March 2003 Purchases less returns for the year ended 31 st March ,500 52,000 2,53,750 Sales less returns for the year ended 31 st March 2003 Purchases less return up to 30 th September 2003 Sales less returns up to 30 th September ,15,000 1,45,000 1,84,050 In valuing the stock on 31 st March 2003, due to obsolescence 50% of the value of the stock which originally cost Rs 6,000 has been written-off. In May 2003, three-fourths of this stock had been sold at 90% of the original cost and it is now expected that the balance of the obsolete stock is also expected to realize the same price. Subject to the above, gross profit had remained uniform throughout. The stock salvaged was worth Rs 7,200. Que 17 Bharat Co. suffered a loss of stock due of fire on From the following information, prepare a statement showing claim for the loss to be submitted: Stock on Purchases during the year 2000 Sales during the year ,800 3,20,000 4,05,200 Closing Stock on Purchases from to Sales from ,600 1,08,000 1,22,800 An item of goods purchased in 1999 at a cost of Rs 20,000 were valued at Rs 12,000 on Half of these goods were sold for Rs 5,200 during 2000, and the remaining stock was valued at Rs 4,800 on /4 of the original stock was sold for Rs 2,800 in February 2001 and the remaining was valued at 60% of the original cost. With this exception of this item, the rate of gross profit remained uniform. There was an average clause in the insurance policy which was for Rs 3,00,000. The stock salvaged was Rs 24,000. Que. 18 The premises of Fireproof Ltd. were destroyed by fire on The following figures were ascertained: to Opening Stock Rs. 2,000 2,200 1,180 3,402 Purchases Rs. 16,000 14, ,000 3,500 Sales Rs. 20,000 19,850 18,750 2,.600 Carriage Inwards Rs Freight Outwards Rs In 2000, while valuing closing stock, some defective goods costing Rs 500 were valued at Rs 400. These were sold for Rs 450 in In 2001, an item costing Rs 600 was wrongly valued at Rs 700. This was sold for Rs 550 in In 2002, items costing Rs 1,200 were valued at Rs 1, % of these items was sold in June 2003 for Rs 600. Subject to this, the gross profit rate is more or less uniform. Value of salvage was Rs 800.

6 Que. 19 The factory premises of Toy Company were engulfed in fire on 31 st March 2003 as a result of which a major part of stock was burnt to ashes. The stock was covered by policy for Rs 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 price less 15%. A cash discount is 5% for immediate payment. (b) The goods are also sold to Agents at catalogue price less 10% against cash payment. Goods are sent to branches at catalogue price (d) Catalogue price is cost + 100%. 2. The Sales/Despatch during period up to date of fire is: (a) Sale to dealer (without cash discount) Rs 3,40,000. (b) Sale to dealer (net of cash discount) Rs 3,23,000. (c) Sale to agents Rs 90,000 (d) Despatch to branches Rs 3,00, Stock on 1 st January 2005 was Rs 2,50,000 at catalogue price. 4 Purchases at cost from 1 st January 2005 to 31 st March Rs 6,25, Salvages stock valued at Rs 45,000. Compute the amount of claim to be lodged. Que. 20 A fire occurred in the premises of M/s. Water Co. on 30 th May From the following particulars, relating to the period from 1 st January 2002 to 30 th May 2002, you are required to ascertain the amount of claim to be filled with the insurance company for the loss of stock: (1) Stock as per Balance Sheet at 31 st December 2001, 99,000 (2) Purchases (including purchases of a machinery costing Rs 30,000), 1,70,000 (3) Wages (including wages for the installation of machinery Rs 3,000), 50,000 (4) Sales (including goods sold on approval basis amounting to Rs 49,500. No confirmation had been received in respect of two-thirds of such goods sold on approval basic), 2,75,000 (5) Sales value of goods drawn by partners, 15,000 (6) Cost of goods sent to consignees on 15 th May 2002, 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 1 st January For valuing the stock for the Balance Sheet as at 31 st December 2001 Rs 1,000 were written-off in respect of a show moving item, the cost of which was Rs 5,000. A portion of these goods were sold at a loss of Rs 500 on the original cost of Rs 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 unfirom rate throughout. The value of goods salvaged was estimated at Rs 25,000. The concern had taken an insurance policy for Rs 60,000 which was subject to the average clause. Que. 21 A fire occurred in the godown of M/s Laxmi on 31 st March The stock as on 31 st December 2000 was valued at Rs 5,88,000. From the following particulars relating to the period from 1 st January 2001 to 31 st March 2001, you are required to ascertain the amount of claim to be lodged with the insurance company in respect of the value of goods destroyed by fire: (1) The purchases during the above period amounted to Rs 2,13,000 of which goods costing Rs 30,000 were received on 8 th May, (2) Goods costing Rs 15,000 were found defective and were sold for Rs 9,000. The goods is question had been included in the closing stock as at 31 st December at cost. (3) The closing stock as at 31 st December 2000 was undervalued by Rs 12,000. (4) The sales during the above period amounted to Rs 2,79,000 of which sales on approval basis amounted to Rs 30,000. No intimation was received from the customers in respect of 60% of the goods sold on approval basis. (5) On 20 th February 2001, goods costing Rs 68,000 were sent to consignees and the same were lying unsold with them. (6) The accounting year of the firm ends on 31 st December every year and the sales and gross profits of the preceding 5 years are as under: Year Sales (Rs) Gross Profit (Rs) ,97,500 11,53,750 9,75,000 8,93,750 9,75,000 3,49,375 3,46,125 3,25,000 3,03,875 3,37,050 The gross profit during the period of fire should be taken on the basis of the weighted average of last five years profits, giving more weightage to the results of the later years. (7) The value of the goods salvaged was estimated at Rs 1,20,000. (8) The insurance policy taken out by the company was for Rs 3,00,000. The policy was subject to average clause.

7 Que. 22 From the following information, find the claims under a loss of profit policy: Sales in 1999 Sales in 2000 Sales in 2001 Sales in 2002 Standing charges (all insured) in 2002 Net profit in ,00,000 1,20,000 1,44,000 1,72,800 7,280 10,000 Policy value Date of dislocation by fire Period of dislocation Indemnity period Sales from to Sales from to There was no reduction in standing charges during the dislocation period, nor were there any additional costs. 50,000 1, Months 9 Months 43,200 11,840 Que. 23 Dark Ltd. has a loss of profit insurance policy of Rs 12,60,000. The period of indemnity is three months. A fire occurred on 31 st March The following information is available: Sales for the year ended 31 st December 2008 Sales for the period from 1 st April 2008 to 31 st Mar Sales for the period from 1 st April 2008 to 30 th June 2008 Sales for the period from 1 st April 2009 to 30 th June ,00,000 48,00,000 10,80,000 72,000 Standing charges for 2008 Profit for 2008 Saving in standing charges because of fire Additional expenses to reduce loss of turnover 9,60,000 3,00,000 30,000 60,000 Assuming no adjustment has to be made for the upward trend in turnover, compute the claim to be made on the insurance company. Que. 24 A businessman took out a loss of profit policy for Rs 40,000 with an indemnity period of 6 months. The financial year of the business ended on 30 th June. Gross profit for the last financial year was Rs 50,000 and turnover for the period was Rs 2,00,000. Turnover for the 12 months immediately preceding for was Rs 2,20,000. A fire occurred on 31 st March, Turnover for 6 months immediately following the fire, compared with the turnover of corresponding months in the previous year was: April May June July August September 2002 (Rs) 16,000 17,000 18,000 16,000 17,000 19, (Rs) -- 6,000 9,000 14,000 16,000 18,000 Rs 1,000 was spent on putting the fire out. During the indemnity period, increase in the cost of working directly attributable to sales amounted to Rs 8,050. All standing charges of the business were insured and paid. From the above particulars, you are required to assess the loss and the amount payable by the insurance company as claim under the policy. Que. 25 A fire occurred on 1 st February 2007 in the premises of Q Ltd, a retail store, and business was partially disorganized up to 30 th June The Company was insured under a loss of profit for Rs 1,25,000 with a six months period indemnity. From the following information, compute the amount of claim under the loss of profit policy. Actual turnover from 1 st February to 30 th June 2007 Turnover from 1 st February 2006 to 31 st Jan Insured standing charges for last financial year Turnover for the last financial year 80,000 4,50,000 56,000 4,20,000 Turnover from 1 st February to 30 th June 2006 Net profit for last financial year Total standing charges for last financial year 2,00,000 70,000 64,000 The company incurred additional expenses amounting to Rs 6,700 which reduced the loss in turnover. There was also a saving during the indemnity period of Rs 2,450 in the insured standing charges as a result of the fire. There had been a considerable increase in trade since the date of the last annual account and it has been agreed that an adjustment of 15% be made in respect of the upward trend in turnover. Que. 26 From the following information, you are required to work out the claim under the loss of profit insurance policy. (1) Cover- Gross profit Rs 1,00,000. (2) Indemnity period- Six months. (3) Damage due to a fire accident on 28 th December, accounting year ends on 31 st December. (4) Net profit plus all standing charges in the prior accounting year Rs 1,30,000. (5) Standing charges uninsured Rs 25,000. (6) Turnover of the last accounting year Rs 5,00,000, the rate of gross profit being 25%. (7) The annual turnover namely the turnover for 12 months immediately preceding the fire Rs 5,20,000. (8) As a consequence of fire, there was reduction in certain insured standing charges at the rate of Rs 25,000 per annum. (9) The standard turnover was Rs 2,60,000. (10) Increased costs of working during the period of indemnity were Rs 20,000. (11) Turnover during the period of indemnity was Rs 1,00,000 and out of this, turnover of Rs 80,000 was maintained due to increased costs of working. Que. 27 The premises of a company was partly destroyed by fire on 1 st March 2002, as a result of which the business was disorganized from 1 st March to 31 st July, Accounts are closed on 31 st December every year. The Company is insured

8 under a loss of profit policy for Rs 7,50,000. The period of indemnity specified in the policy is 6 th months. From the following information, you are required to compute the amount of claim under the loss of profit policy. Turnover for the year 2001 Net profit for the year 2001 Insured standing charges Uninsured standing charges Turnover during the period of dislocation i.e. from to Savings in insured standing charges 40,00,000 2,40,000 4,80,000 80,000 8,00,000 30,000 Standard turnover for the corresponding period in the preceding year i.e. from to Annual turnover for the year immediately preceding the fire i.e. from to Increased cost of working Reduction in turnover avoided through Increase in working cost Owing to reasons acceptable to the insurer, the Special circumstances clause stipulates for: (a) Increase of turnover (standard and annual ) by 10% and (b) Increase of rate of gross profit by 2%. 20,00,000 44,00,000 1,50,000 4,00,000 Que. 28 A fire occurred in the premises of a businessman on 31 st January 2003, which destroyed stock. However, stock worth Rs 5,940 was salvaged. The company s insurance policy covers the following: Stock Rs 6,00,000; Loss of profit (including standing charges) Rs 3,75,000; and Period of indemnity 6 months. Profit and Loss Account for the year ended 31 st December 2002 Particulars Rs. Particulars Rs. To Opening Stock To Purchases To Standing charges To Variable expenses To Net Profit 6,18,750 27,18,750 2,51,250 1,20,000 78,750 By Sales By Closing Stock 30,00,000 7,87,500 37,87,500 37,87,500 The transactions for the month of January, 2002 were: (i) Turnover- Rs 1,50,000; and (ii) Payment to creditors Rs 1,60,020. Trade Creditors: 1 st January, 2003 Rs 2,26,000; 31 st January, 2003 Rs 2,30,980. The company s business was disrupted until 30 th April, 2003, during which period the reduction in the turnover amounted to Rs 2,70,000 as compared with the corresponding turnover of same period in the previous year. You are required to submit the claim for insurance for loss of stock and loss of profit. Que. 29 A loss of profit policy was taken for Rs 80,000. Fire occurred on 15 th March, Indemnity period was for three months. Net profit for 1988 year ending on 31 st December was Rs 56,000 and standing charges (all insured) amounted to Rs 49,600. Determine insurance claims from the following details available from quarterly sales tax returns: Sales 1986 (Rs) 1987 (Rs) 1988 (Rs) 1989 (Rs) From 1 st January to 31 st March 1,20,000 1,30,000 1,42,000 1,30,000 From 1 st April to 30 th June 80,000 90,000 1,00,000 40,000 From 1 st July to 30 th September 1,00,000 1,10,000 1,.20,000 1,00,000 From 1 st October to 31 st December 1,36,000 1,50,000 1,66,000 1,60,000 Sales from to were Rs 28,000. Sales from to were Rs 24,000. Sales from 16, to were Rs 6,000. Sales from to were Rs Nil Que. 30: The Balance Sheet of Malya. Manufacturers Ltd. as at 31 st March, 1992 included the following assets: Fixed Assets: Freehold factory at cost Rs 2,50,000; Plant at cost Rs 1,40,000 with an accumulated depreciation of Rs 40,000. Current Assets: Stock Rs 1,85,000. These assets were insured for the following sums: Factory building Rs 3,00,000; Plant Rs 1,60,000; and Stock Rs 1,60,000. On 30 th June, 1992, the factory and its contents which included the above items were totally destroyed by fire, except the stock salvaged. The following bases were agreed with the insurer: Factory Building Rs 2,80,000; Plant Rs 1,50,000 and stock (subject to average ) Rs. 2,40,000 The actual Stock at the date of fire was valued at Rs 3,00,000 of which Rs 60,000 was salvaged. The claim was paid on 30 th September, The freehold land was estimated by the Directors to have a cost of Rs 40,000 out of the total cost of land and buildings of Rs 2,50,000. Ascertain the amount of insurance claim, record the foregoing in the company s books and show how the concerned items would appear in the Balance Sheet as at 31 st March, Que. 31 On 1 st May, 1993 a fire occurred at the factory of XYZ manufacturing co. Ltd. and claims against to General Insurance Co. Ltd. were admitted on 5 th August as follows: Original cost Book Value Claimed Admitted Repairs of Factory Rs ,35,000 90,000

9 Plant destroyed Rs 3,60,000 2,25,000 3,15,000 2,70,000 Repairs to Plant Rs ,000 22,500 Stock destroyed Rs 4,50, ,50,000 3,87,000 Stock damaged Rs ,000 36,000 Loss of Profit Rs ,000 45,000 Fire Brigade Charges Rs ,000 6,300 The amounts claimed for repairs to factory and plant and the fire brigade charges were paid by the company. Give journal entries in the company s books and state how the final differences, if any, should be treated in the company s Accounts including the profit or loss on account of insurance. Question 32. S Ltd., which operates a wholesale warehouse, had a fire in the premises on Jan. 31, 2009 which destroyed most of the building, although stock of the value of Rs.396 was salvaged. The company has an insurance policy covering the stock for Rs. 60,000, the building for Rs. 80,000 and loss of profits including standing charges for Rs. 25,000 with six month period of indemnity. The company s last annual accounts for the year ended Dec. 31, 2009 showed the following position: To Opening Stock 41,250 Add: Purchases 1,81,250 2,22,500 Less: Closing Stock 52,500 Rs. Rs. By Sales 2,00,000 1,70,000 Add: Gross profit 30,000 2,00,000 2,00,000 To Variable Expenses 8,000 By Gross Profit 30,000 To Standing Charges 16,750 To Net Profit 5,250 30,000 30,000 The company s records show that the turnover for Jan had been the same as for the corresponding month in the previous year at Rs. 10,000, payments made in Jan to trade creditors were Rs. 10,668 and at the end of the that month the balance owing to trade creditors had increased by Rs The company s business was disrupted until the end of April, during which period the turnover fell by Rs. 18,000 compared with the same period in the previous year. It was agreed that three-quarters of the value of the building had been lost and that the time of the fire it had been worth Rs. 1,00,000. You are required to prepare statements showing the amount to be claimed by the company from its insurers for (a) Loss of Stock: (b) the building and (c) Loss of Profits. Question 33. From the following Trading and Profit and Loss account of S Ltd. for the year ended 30th June Compute the sum for insurance under a loss of profits policy. It is desired that all standing charges be issued. S Ltd. Trading and Profit and Loss Account Dr. for the year ended 30 th June 2009 Cr. To Opening Stock To Purchases To Wages: Skilled 10,000 Unskilled 30,000 Rs 1,00,000 2,50,000 40,000 1,85,000 By Sales By Closing Stock Rs 4,50,000 1,25,000

10 To Gross Profit c/d To Salaries (10% variable) To Interest on Debentures To Rates and Taxes To Light and Power To Insurance To subscriptions To Legal Expenses (regarding Sales) To Advertising To General Expenses (40% Variable) To Discount Allowed To Commission on Sales To Dep. on Building To Rent To Audit fees To Director s fees To Net Profit 5,75,000 5,75,000 39,000 By Gross Profit 1,85,000 3,000 By Interest on Investment 5,000 6,000 1,250 2, ,500 1,500 7,500 7,500 12,500 15,000 7, ,000 74,750 1,90,000 1,90,000