Insurance Claims for Loss of Stock and Loss of Profit – CA Inter Accounts Question Bank

Insurance Claims for Loss of Stock and Loss of Profit – CA Inter Accounts Question Bank is designed strictly as per the latest syllabus and exam pattern.

Insurance Claims for Loss of Stock and Loss of Profit – CA Inter Accounts Question Bank

Question 1.
Write short notes on the following:
Average clause under Fire insurance Policy. (Nov 2005, 5 marks)
Answer:
The objective of average clause ¡s discouraging the insured to under insurance. It is not necessary to include average clause in fire insurance policy. It is applicable only in those areas where the insured has underinsured. Underinsurance Implies that insurance made for the lesser value of stock. It the amount of policy is less than the estimated value of stock destroyed, then the insurance company will settle the claim proportionately by applying the average dause. On applying average clause, actual claim can be determined as:
Claim = Loss suffered × \(\frac{\text { Insurance Policy Value }}{\text { Actual Insurable Value }}\)
Note: In case the account insured is more than actual stock value, average clause is not applicable.

Question 2.
Answer the following:
What is average clause under insurance claim? (May 2009, 2 marks)
Answer:
When a businessman wants to reduce the burden of Insurance Premiums 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 = \(=\frac{\text { Amount of Policy }}{\text { Insurable Amount }}\) × Actual Loss

Question 3.
Mr. ‘A prepares accounts on 30th September each year, but on 31st December 2001 fire destroyed the greater part of his stock. Following information was collected from his books:
Stock as on 1.10.2001 ₹ 29,700
Purchases from 1.1 0.2001 to 31.12.2001 ₹ 75,000
Wages from 1.10.2001 to 31.12.2001 ₹ 33,000
Sales from 1.10.2001 to 31.12.2001 ₹ 1,40,000
The rate of Gross Profit is 33 % on cost. Stock to the value of ₹ 3,000 was salvaged. Insurance policy was for ₹ 25,000 and Claim was subject to average clause.

Additional Informations:
(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 ₹ 500, which was included in wages.
(iii) Purchases include the purchase of the plant for ₹ 5,000. You are required to calculate the claim for the loss of Stock. (Nov 2002, 7 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 1

Question 4.
A fire occurred in the workshop of Mr. A on 31st 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 1st 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 1st January 2006 was ₹ 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 ₹ 25,000. It included an average clause. Prepare a statement of claim to be made on the Insurance Company by Mr. A. (May 2006, 6 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 2
Working Note:
(1) Calculations of Gross Profit:
GP Ratio = \(\frac{\text { Gross Profit }}{\text { Sales }} \times 100\)
30 = \(\frac{\mathrm{GP}}{45,000} \times 100\)
\(\frac{30 \times 45,000}{100}\) = GP
Gross Profit = ₹ 13,500

Statement of claim to be made on the insurance co., by Mr. A Average Clause = \(\frac{\text { Amt. of Policy }}{\text { Value of Stock }} \times \text { Actual loss of Stock } \) = \(\frac{25,000}{30,000}\) × (30,000 – 7500 Salvage) ₹ = 18.750
Claim to be made by A = ₹ 18,750.

Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank

Question 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 up to 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 up to 2.6.2007 does not include goods worth ₹ 30,000 received from suppliers, as invoice not received up to 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. (May 2007, 8 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 3

Question 6.
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
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. (May 2008, 8 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 5

Working Note 2:
Calculation of Gross Profit rate
GP Ratio = \(\frac{G P}{\text { Sale }} \times 100 \)
= \(\frac{171,000}{8,55,000} \times 100\) = 20%
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 6

Question 7.
A fire broke out in the godown of a business house on 8th July 2009. 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 31st March 2009 was ₹ 15,72,000. Purchases for the period horn 1st April 2009 to 8th 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 respect of its entire stack. Assist accountant of the business house in computing amount of claim of loss by fire.(Nov 2009, 8 marks)
Answer:

Calculation of amount of claim
Value of stock as on 8th July 2009 (Refer W. N.) 16,00,000
Less: Value of stock remaining unaffected by fire Agreed value of damaged goods 2,03,000

1,97,000

4,00,000
Loss of Stock 12,00,000

Applying average clause:
Amount of claim = \(\frac{\text { Amount of Policy }}{\text { Stock on the date of file }} \times \text { loss of Stock } \)
= \(\frac{₹ 10,00,000}{₹ 16,00,000} \times 12,00,000 \)
= ₹ 7,50,000
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 7

Question 8.
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 7th March 2010, a fire broke out destroying goods costing ₹ 44 Iakhs. Stock in the godown was estimated at ₹ 80 lakhs. Compute the amount of insurance claim. (May 2010, 2 marks)
Answer:
Amount of insurance daim Amount of insurance policy
= \(\text { Amount of loss due to fire } \times \frac{\text { Amount of insurance policy }}{\text { Total stock in the godown }}\)
= \( ₹ 44 \text { lakhs } \times \frac{₹ 60 \text { lakhs }}{₹ 80 \text { lakhs }}\) = ₹ 33 lakhs

Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank

Question 9.
On 30th March 2011 fire occurred in the premises of Mis 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 1st January to 30th March 2011.
1. Stock as per Balance Sheet at 31st 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 2/3rd 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 daim to be lodged to the insurance company. (May 2011, 5 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 8
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 = ₹ 26,400

3. 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 31st August 2010. From the following particulars relating to the period from 1st April 2010 to 31st 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 average clause.
(i) Stock as per Balance Sheet at 31-03-2010 ₹ 99,000
(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 consignees on 16” August, ₹ 16,500 2010, lying unsold with them
(vii) Cost of goods distributed as free samples ₹ 1,500
While valuing the stock at 31 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, 10 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 9

Question 11.
On 29th August 2012, the godown of a trader caught fire and a large part of the stock of goods was destroyed. However, goods costing ₹ 108,000 could be salvaged incurring firefighting expenses amounting to ₹ 4,700. The trader provides you the following additional information:
Cost of stock on 1st April, 2011 ₹ 7,10,500
Cost of stock on 31st March, 2012 ₹ 7,90,100
Purchases during the year ended 31st March, 2012 ₹ 56,79,600
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 ol 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, 2012 ₹ 80,00,000
Sales from 1st April 2012 to the date of fire ₹ 45,36,000
The insurance company also admitted fire fighting expenses. The trader had taken the life 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)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 11
Note: Because (policy amount is more than daim amount). Average clause will not apply. Hence, claim amount of only 7,79,300 Will be admitted by the Insurance Company.
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 12
Rate of Gross Profit in 2011 – 12
\(\frac{\text { Gross profit }}{\text { Sales }} \times 100=\frac{24,00,000}{80,00,000} \times 100\) = 30%

Question 12.
On 15th December 2012. a fire occurred on 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 March 2012 was valued at ₹ 9,40,000.
(ii) Purchases from 01-04-2012 to 15-12-2012 amountea 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. (May 2013, 5 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 13
As the value of stock is more than insured value, amount of claim would be subject to average, clause.
Amount of Claim = \(\frac{\text { Amount of Policy }}{\text { Value of Stock }} \times \text { Actual Loss of Stock }\)
Amount of Claim = \(\frac{4,00,000}{6,40,000} \times 5,00,0000\) = ₹ 3,12,500

Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank

Question 13.
A fire occurred in the premises of M/s Kailash & Co. on 30th September 2013. From the following particulars relating to the period from 1st April 2013 to 30th 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 gn3ds 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. Purchases made 2,40,000
iii. Wages paid (including wages for the Installation of a machine ₹ 5000) 75,000
iv. Sales 3,10,000
v. Goods taken by the Proprietor (Sale Value) 25,000
vi. Cost of goods sent to Consignee on 20th September 2013, lying unsold with them 18,000
vii. Free Samples distributed-Cost 2,500

(Nov 2014, 8 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 14
Claim = \(\frac{\text { Loss }}{\text { Estimated stock }} \times \text { Policy Amount }\)
= \(\frac{1,14,500}{1,41,500} \times 75,000\)
Claim of Stock = ₹ 60,689
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 15

Question 14.
On 1st April 2016, the stock of Mr. Hariprasad was destroyed by fire but sufficient records were saved from which following particulars were as certained:
‘Stock at cost 1 Jan 2015 ₹ 1,47,000
Stock at cost 31st Dec. 2015 ₹ 1,59,200
Purchases year ended 31st Dec. 2015 ₹ 7,96.000
Sales year ended 31st 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’ 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 March 2016 at a loss of ₹ 500 on 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)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 16
Normal Gross Profit Ratio = \(\frac{\text { GP }}{\text { Sales }} \times 100=\frac{1,94,800}{9,74,000} \times 100 \) = 20%.
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 17
Admissible claim = \(\text { Net claim } \times \frac{\text { Policy Amount }}{\text { Value of loss }}\)
= \(1,04,500 \times \frac{1,00,000}{1,16,100} \) = ₹ 90,00,8.61

Question 15.
On 27th July, 2016, a fire occurred in the godown of Mis. Vijay Exports and
most of the stocks were destroyed. However, goods costing ₹ 5,000 could be salvaged Their firefighting expenses were amounting to ₹ 1,300. From the salvaged accounting records, the following Information is available relating to the period from 1.4.2016 to 27.7.2016:
1. Stock as per balance sheet as on 31.3.2016 ₹ 63.000
2. Purchases (including purchase of machinery costing ₹ 10,000) ₹ 2,92,000
3. Wages (including wages paid for installation of machinery ₹ 3,000) ₹ 53,000
4. Sales (including goods sold on approval basis amounting to ₹ 40,000). No approval has been received in respect of 1/4th of the goods sold on approval. ₹ 4,12,300
5. Cost of goods distributed as free sample ₹ 2,000

Other Information:
i) While valuing the stock on 31.3.2016, ₹ 1,000 had been written off in respect of certain slow-moving items costing ₹ 4,000. A portion of these goods were sold in June, 2016 at a loss of ₹ 700 on original cost of ₹ 3,000. The remainder of these stocks is now estimated to be worth its original cost.
(ii) Past record shows the normal gross profit rate is 20%.
(iii) The insurance company also admitted firefighting expenses. The Company had taken the fire insurance policy of ₹ 55,000 with the average clause.
Compute the amount of daim of stock destroyed by fire, to be lodged to the Insurance Company. Also prepare Memorandum Trading Account to be for the period 1.4.2016 to 27.7.2016 for normal and abnormal items. (Nov 2017, 10 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 18

Question 16.
On 30th March, 2018 fire occurred In the premises of M/s Alok & Co. The concern had taken an insurance policy of ‘ 1.20,000 which was subject to the average clause. From the books of accounts, the following particulars are available relating to the period 1st January to 30th March, 2018.
(i) Stock as per Balance Sheet at 31’ December, 2017 ₹ 1,91,200
(ii) Purchases (induding purchase of machinery costing ₹ 60,000). ₹ 3,40,000
(iii) Wages (including wages ₹ 6,000 for installation of ₹ 1,00,000 machinery)
(iv) Sales (including goods sold on approval basis ₹ 5,50,000 amounting to ₹ 99,000)
No approval has been received in respect of 2/3rd of the goods sold on approval.
(v) The average rate of gross profit is 20% of sales.
(vi) The value of the salvaged goods was ₹ 24,600
You are required to compute the amount of the claim to be lodged to the Insurance Company. (May 2018, 10 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 20
A claim of ₹ 96,422 (approx) should be lodged by M/s. Alok & Co. to the insurance company.
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 21
For financial statement purposes, this would form part of dosing stock (since there is no sale). However, this has been shown separately for computation of claim for loss of stock since the goods were physically not with the concern and, hence, there was no loss of such stock.

2. CalculatIon of goods with customers Since no approval for sale has been received for the goods of ₹66,000 (i.e. ⅔ of ₹ 99,000) hence, these should be valued at cost i.e. ₹ 66,000- 20% of 66.000 = ₹ 52,800.

3. Calculation of actual sales Total sales – sales of goods on approval (⅔rd = ₹ 5,50,000 – ₹ 66,000 = ₹ 4,84,000

Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank

Question 17.
A tire engulfed the premises of a business of M/S Kite Ltd. in the morning, of 1st October, 2017. The entire stock was destroyed except, stock salvaged of ₹ 50,000. Insurance Policy was for ₹ 5,00,000 with average clause. The following information was obtained from the records saved for ‘the period from 1st April to 30th September 2017:

Sales 27,75,000
Purchases 18,75,000
Carriage inward 35,000
Carriage outward 20,000
Wages 40,000
Salaries 50,000
Stock in hand on 31st March’, 2017 3,50,000

Additional Information:
(1) Sales upto 30th September, 2017, includes ₹ 75,000 for which goods had not been dispatched.
(2) On 1st June. 2017, goods worth ₹ 1,98,000 sold to Hari on approval basis which was included In sales but no approval has been received in respect of 2/3rd of the goods sold to him till 30th September, 2017.
(3) Purchases up to 30th September 2017 did not Include ₹ 1,00,000 for which purchase invoices had not been received from suppliers, through goods have been received in godown.
(4) Past records show the gross profit rate of 25% on sales. You are required to prepare the statement of claim for loss of stock for submission to the Insurance Company. (Nov 2018, 10 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 22
Insurance claim = ₹ 3,25,000
(Average clause is not applicable as insurance policy amount (₹ 5,00,000)
is more than the value of dosing stock i.e. ₹ 3,75,000)

Working Note:
1. Calculation of goods with customers Since no approval for sale has been received for the goods of ₹ 1,32,000 (i.e. 2/3 of ₹ 1,98,000) hence, these should be valued at cost i.e. ₹1,32,000 – 25% of ₹ 1,32,000 = ₹ 99,000.

2. For financial statement purposes, this would form part of closing stock (since there is no sale). However, this has been shown separately for computation of claim for loss of stock since the goods were physically not with the entity and, hence, there was no loss of such stock.

Question 18.
A Fire occurred In the premises of M/s B & Co. on 30th September. 2019. The firm had taken an insurance policy for ₹ 1,20,000 which was subject to an average dause. Following particulars were ascertained from the available records for the period from 1st April 2018 to 30th September 2019:

Amount (₹)
Stock at cost on 01-04-2018 2,11,000
Stock at cost on 31-03-2019 2,52,000
Purchases during 2018-19 6,55,000
Wages during 2018-19 82,000
Sales during 2018-19 8,60,000
Purchases from 01-04-2019 to 30-09-2019 (including purchase of machinery costing 58,000) 4,48,000
Wages from 01-04-2019 to 30-09-2019 (including wages foc installation of machinery costing ₹ 7,000) 85,000
Sales from 01-04-2019 to 30-09-2019 6,02,000
Sale value of goods drawn by partners (1-4-19 to 30-9-19) 52,000
Cost of Goods sent to consignee on 18” September, 2019 lying unsold with them 44,800
Cost of Goods distributed as free samples 8,500

While valuing the Stock at 31st March, 2019, ₹ 8,000 were written off in respect of a slow moving item, cost of which was ₹ 12,000. A poflion of these goods were sold at a loss of ₹ 4,000 on the original cost of ₹ 9,000.
The remainder of the stock is estimated to be worth the odginal cost. The value of Goods salvaged was estimated at ₹ 35,000.
You are required to ascertain the amount of claim to be lodged with the Insurance Company for the loss of stock. (Nov 2020, 10 marks)

Question 19.
A Fire occurred in the premises of M/S MJ & Co., on 31st December 2019. From the following particulars related to the period from 1st April, 2019 to 31st December, 2019. you are required to ascertain the amount of daim to be filed with the Insurance company for the loss of stock. The company has taken an insurance policy for ₹ 1,00,000 which is subject to average clause. The value of goods salvaged was estimated at ₹ 31,000. The average rate of gross profit was 20% throughout the period:

Particulars Amount (₹)
Opening stock as on 1 April 2019 1,50,000
Purchases during the year 4,20,000
Goods withdrawn by the proprietor for his self use at Sales Value 10,000
Goods distributed as charity at cost 4,000
Purchases include 5,000 of Tools purchased, these Tools should have been capitalized.
Wages (include wages paid for the installation of 90,000 machinery 6,000
Sales during the year 6,10,000
Cost of goods sent to consignee on 1st November 2019, lying unsold with the consignee. 25,000
Sales Return 10,000

(Jan 2021, 10 marks)

Question 20.
Ramesh prepares accounts on 30th September each year, but on 31st December, a fire destroyed the greater part of his Stock. Following Information was collected from his books:
Stock as on 1st October 29,700
Purchases from 1st October to 31st December 75,000
Wages from 1st October to 31st December 33,000
Sales from 1st October 31st December 1,40,000
The Gross Profit rate is 33.33% on Cost. Stock to the value of ₹ 3,000 was salvaged. Insurance Policy was for ₹ 25,000 and claim was subject to Average Clause.
Calculate the daim for the Loss of Stock from the following additional information:
Stock, in the beginning, was valued at 10% less than cost.
A Plant was installed by Firm’s own worker. He was paid ₹ 500, which was induded in Wages.
Purchases include Purchase of the plant for ₹ 5,000.
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 24

Question 21.
A Fire occurred on the premises of a merchant on 15th June and a considerable part of the Stock was destroyed. The value of Stock saved was ₹ 9,000. The books disclosed that on 1st April, Stock was valued at ₹ 73,500, Purchases to the date of tire amounted to ₹ 2,09,880, and Sales ₹ 3,13,000. On investigation, it was found that during the past five years, the average Gross Profit on Sales was 36%. Prepare a statement showing the amount, the Merchant should claim from the Insurance Company in respect of Stock destroyed by fire.
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 25

Question 22.
Due to a fire on 1st July, the entire Stock was burnt except some costing ₹ 70,000. The information available from the books of accounts saved were as follows:
The Average Gross Profit was 25% on Sales.
The Stock on 31st December, valued as per practice at 10% above cost was ₹ 2,20,000.
The Purchases and Sales from 1st January upto the date of fire were ₹ 300,000 and ₹ 6,80,000 respectively.
The Wages for the period amounted to ₹ 1,44,000.
The Company insured Stock for ₹ 1,20,000.
The Policy had an Average Clause.
Prepare a statement showing the amount of Stock lost by fire and the claim to be lodged with the Insurance Company.
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 27

Question 23.
On 20th July 2019, the Godown and Business Premises of Raj were affected by fire, and from the accounting records salvaged, the following information is made available to you:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 29
Sales upto 20m July, 2019 included ₹ 40,000 for which goods had not been despatched. Further, Purchases upto 201h July, 2019 did not include ₹ 20,000 for which Purchase invoices had not been received for Suppliers, though goods have been received at the Godown. Goods salvaged from the accident were worth ₹ 12,000 and these were handed over to the insurer. Ascertain the value of the claim for loss of Goods/Stock.
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 30

Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank

Question 24.
A fire engulfed the premises of a business of M/s Preet on the morning of 1st July 2018. The building, equipment, and stock were destroyed and the salvage recorded the following:
Building – ₹ 4,000; Equipment – ₹ 2,500; Stock – ₹ 20,000. The following other information was obtained from the records saved for the period from 1st January to 30th June 2018:

Particulars
Sales 11,50,000
Sales Return 40,000
Purchases 9,50,000
Purchase return 12,500
Cartago inward 17,500
Wages 7,500
Stock in hand on 31st December 2017 1,50,000
Building (value on 31 December 2017) 2,75,000
Equipment (value on 31 December 2017) 75,000
Depreciation provision tilt 31st December 2017 on: Building, 1,25,000
Equipment 22,500

No depreciation has been provided since December 31st, 2017. The latest rate of depreciation is 5% p.a. on building and 15% p.a. on equipment by straight-line method. Normally business makes a profit of 25% on net sales. You are required to prepare the statement of claim for submission to the Insurance Company.
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 32

Question 25.
Compute the amount of claim from the following information:
Sum Insured against the loss of furniture ₹ 73,000
Value of Salvaged Furniture ₹ 6,000
Actual Value of furniture as on date of fire ₹ 1,70,000
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 34

Question 26.
The premises of Fire Proof Ltd. were destroyed by tire on 30.6.2024. The following figures were ascertained. You are required to prepare a statement of claim in respect of loss of stock to be submitted to the insurance company.
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 35
In 2021, while valuing closing stock, some defective goods costing ₹ 500 were valued at 400. These were sold for ₹ 450 in 2022. In 2022, an item costing ₹ 600 was wrongly valued at ₹ 700. This was sold for ₹ 550 in 2023.

In 2013, item costing 1,200 were valued at ₹ 1,000, 50% of these were sold in June 2024 for ₹ 600. Subject to this, the gross profit rate is more or less uniform. The value of salvage was 800 and the sum insured was ₹4,500.
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 36Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 37
Gross Profit Ratio = \(\frac{\text { Gross Profit }}{\text { Net Sales }} \times 100=\frac{₹ 3,880}{₹ 19,400} \times 100 \) = 20%.
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 38

Question 27.
Answer the following:
What is Consequential loss policy and what items are generally covered by such policy? (May 2017, 4 marks)
Answer:
Consequential Loss Policy:
When a tire occurs, apart from the direct loss on accounts of stock or other assets destroyed, there is also a consequential loss because, for sometimes, the business is disorganised or has to be discontinued, and during that period, the standing expenses of the business like rent, salaries, etc. Continue.
The consequential loss policy covered the following items:

  1. Loss of net profit
  2. Standing charges
  3. Any increased cost of working e.g., renting of temporary premises.

Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank

Question 28.
On account of a fire on 15th June 2002 in the business house of a company, the working remained disturbed upto 15th 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 the following additional information In view:
Actual Sales from 15 June 2002 to 15th” Dec. 2002 ₹ 70,000
Sales from 15th’ June 2001 to 15th Dec. 2001 ₹ 2,40,000
Net profit tor 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: 16th June 2001 to 15th June 2002 ₹ 5,60,000.
(Nov 2003, 9 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 39

Question 29.
Answer the following:
A Company ‘lodged a daim to insurance company for ₹ 5,00,000 in September. 2006. The claim was settled in February 2007 for ₹ 3,50,000. How will you record the shortfall in claim settlement in the books of the company. (Nov 2007, 2 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 41

Question 30.
From the following details, calculate the consequential loss claim:
1. Date of fire: 1st September following;
2. Indemnity period: 6 months;
3. Penod of disruption: 1st September to 1st February;
4. Sum insured: ₹ 1,08,00;
5. Sales were ₹ 6,00,000 for preceding financial year ended on 31st March.
6. Net profit for preceding financial year 36,000 plus insured sanding 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 turn over i.e. for corresponding months (1 September to 1 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%. (Now 2008, 8 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 42
2. Increased rate of G.P. = 18% + 2 = 20% on sales.
3. Loss of profit on short sales = 20% of ₹ 1,80,000 = ₹ 36,000.
4. Calculation of claim for Increased cost of working capital Increased cost of working will be lower of ₹
(i) Actual expenses 12,000
(ii) Additional expenses x
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 43
\(12,000 \times \frac{1,45,200}{1,45,200+6,000} \) 11,523
(iii) G.P. on additional sales = 30,000 × 20% 6,000 ₹ 6,000 is lower’oI 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
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 44

Question 31.
Answer the following:
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
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. (Nov 2010, 4marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 45

Question 32.
Monalisa & Co. runs plastic goods shop. Following details are available from quarterly sales tax return filed.
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 46
Period ₹
Sales from 16-09-2011 to 30-09-2011 34,000
Sales from 16-09-2012 to 30-09-2012 Nil
Sales from 16-12-2011 to 31-12-2011 60,000
Sales from 16-12-2012 to 31 -12-2012 20,000
A loss of profit policy was taken for ₹ 1,00,000. Fire occurred on 15th September 2012. Indemnity period was for 3 months. Net Profit was ₹ 1,20,000 and standing charges (afl insured) amounted to ₹ 43,990 for year ending 2011. Determine the Insurance Claim. (Nov 2013, 16 marks)
Answer:
1. Period of Indemnity (given) = 3 months (15.09.2012 to 15.12.201 2)
2. Computation of GP Ratio
GP Rate for Claim Purposes
= \(\frac{\text { Net Profit }+ \text { Insured standing charges }}{\text { Sales }} \times 100\)
= \(\frac{1,20,000+43,990}{8,19,950}\) = 20%
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 47
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 48

Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank

Question 33.
M/s. Platinum Jewellers wants to take up a loss of Profit Policy” for the year 2015. The extract of the Profit and Loss Account of the previous year ended 31-12-2014 provided below:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 49
Turnover is expected to grow by 25% next year.
To meet the growing working capital needs the partners have decided to avail overdraft facilities from their bankers @ 12% p.a. interest.
The average daily overdraft balance will be around ₹ 2 lakhs.
The wages for the skilled craftsmen will increase by 20% and salaries by
10% in the current year. All other expenses will remain the same.
Determine the amount of policy to be taken up for the current year by M/s. Platinum Jewellers. (May 2015, 6 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 50

Question 34.
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 ₹ 6,75,000
Standing charges in the last financial year ₹ 1,14,750
Net profit earned in last year was 10% of turnover and the same trend expected In subsequent year.
Increase in turnover expected 30%.
To achieve additional sales, trader has to incur additional expenditure of ₹ 42,500. (Nov 2015, 8 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 52

Question 35.
A firm has decided to take out a loss of profit policy for the year 2016 and given the following information for the last accounting year 2015. Variable manL’facturing expenses ₹ 14,20,000, Standing charges ₹ 1.50,000, Net profits ₹ 80,000, Non-operating income ₹ 2,500. Sales ₹ 18,00,000.
Compute the sum to be insured In each of the following alternative cases showing the anticipation for the year 2016:
(i) If sales will increase by 15%.
(ii) It sales will increase by 15% and only 50% of the present standing charges are to be insured.
(iii) If sales and variable expenses will increase by 15% and standing charges will increase by 10%.
(iv) If sales will increase by 15% and variable expenses will decrease by 5%.
(v) If sales will increase by 10% and standing charges will increase by 15%.
(vi) If the turnover and standing charges will increase by 15% and variable expenses will decrease by 10% but only 50% of the present standing charges are to be insured. (May 2016, 8 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 53
Note:

  1. The above solution is based on the assumption that increase in sale is due to increase in volume of sales. Alternatively, it may be assumed that this increase is because of rise in selling price. In that case, there will be no proportionate increase in variable expenses and the answer will get changed accordingly.
  2. In case (vi), it is given ¡ri the question that 50% of the present standing charges are to be insured. It is assumed in the above answer that 50% of the increased standing charges are insured.
  3. In case (iii), 15% increase in variable expenses has been calculated after proportionate increase in variable expenses due to increase In turnover.

Question 36.
A fire occurred in the premises of M/s Bright on 25th May 2017. As a result of fire, sales adversely affected up to 30m September. 2017. The firm had taken LOSS of profit policy (with an average clause) for ₹ 3,50,000 having indemnity period of 5 months.
There is an upward trend of 10% in sales.
The firm incurred an additional expenditure of ₹ 30,000 to maintain the sales.
There was a saving of 5,000 in the insured standing charges.

Actual turnover from 25th May 2017 to 30m September 2017 ₹1,75,000
Turn over from 25th May, 2016 to 31st September, 2016 ₹ 6,00,000
Net profit for last financial year ₹ 2,00,000
Insured standing charges for the last financial year ₹ 1,75,000
Total standing charges for the last financial year ₹3,00,000
Turnover for the last financial year ₹ 15,00,000
Turnover for one year from 25th May, 2016 to ₹ 4th May, 2017 ₹ 14,00,000

You are required to calculate the loss of profit claim amount, assuming that entire sales during the interrupted period was due to additional expenses.(May 2019,10 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 54

2. Calculation of Loss of Profit:
Gross Profit on reduction in turnover @ 25% on ₹ 4,85,000 1,21.250 (see working note 1)
Add: Additional Expenses
Lower of
(i) Actual = ₹ 30,000
(ii) \(\text { Additional Exp. } \times \frac{\text { Gross Profit on Adjustedturnover }}{\text { Gross Profit as above }+ \text { UninsuredStanding Charges }} \)
= \(₹ 30,000 \times \frac{3,85,000}{(3,85,000+1,25,000)}\) = ₹ 22,647

(iii) Gross Profit on sales generated by additional expenses
1,75.000 x 25% = ₹ 43,750
It is given that entire sales during the Interrupted period was due to additional expenses
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 55

3. ApplIcation of Average Clause:
\(\frac{\text { Amount of Policy }}{\text { Gross Profit on Annual Turnover }} \times \text { Amount of Claim }\)
\(\left(\frac{3,50,000}{3,85,000}\right) \) × 1,38,897 = ₹ 1,26,270
Amount of claim under the policy = ₹ 1,26,270
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 56
Turnover for the last financial year 15,00,000
Rate of Gross Profit = \(\frac{3,75,000}{15,00,000} \times 100\) = 25%
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 57

Question 37.
A fire occurred in the premises of M/s Kirti & Co. on 15th December 2018. The working remained disturbed up to 15th March 2019 as a result of which sales adversely affected. The firm had taken out an insurance policy with an average clause against consequential losses for 2,50,000. Following details are available from the quarterly sales tax return filed / GST return filed:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 58
A period of 3 months (i.e. from 16-12-2018 to 153-2019) has been agreed upon as indemnity period.
Sales from 16-12-2017 to 31-12-2017 68,000
Sales from 16-12-2018 to 31-12-2018 Nil
Sales from 16-03-2018 to 31-03-2018 1,20,000
Sales from 16-03-2019 to 31 -03-2019 40,000
Net profit was 2,50,000 and standing charges (all insured) amounted to 77,980 for the year ending 31st March 2018.
You are required to calculate the loss of profit claim amount. (Nov 2019, 10 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 59

Calculation of Short Sale:
Indemnity period = 16-12-2018 to 15-03-2019 (3 months) standard sales to be calculated on the basis of the corresponding period of year 2017-18:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 60

3. Loss of Gross Profit:
Short Sales × Gross Profit Ratio = ₹ 1,21,200 x 20% = ₹ 24,240

4. Application of Average Clause:
\(\text { Net claim }=\text { Gross claim } \times \frac{\text { PolicyValue }}{\text { GrossProfitonnormal turnover }} \)
= \(₹ 24,240 \times \frac{₹ 2,50,000}{₹ 3,26,240} \text { (W.N.3) } \)
Amount of claim = ₹ 18,575

Working Notes:
1. Sales for the period 01-01-2018 to 15-03-2018:
Sales for 01-01-2018 to 31-03-2018 (given) = ₹ 3,80,000
Sales for 16-03-2018 to 31-03-2018 (given) = ₹ 1,20,000
Sales for the period 01-01-2018 to 15-03-2018 = ₹ 2,60,000

2. Calculation of upward trend in Sales:
Total Sales in year 201 5-16 = ₹ 12,40,000
Increase in Sales in the year 2016-17 as = ₹ 1,86,000
compared to 2015-16
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 62
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 63

Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank

Question 38.
A Loss of Profit Policy was taken for ₹ 80,000. Fire occurred on 15th March 2021. Indemnity Period was for three months. Net Profit for year ending on 31st December 2020 was ₹ 56,000 and Standing Charges (all Insured) amounted to ₹ 49,600. Determine the Insurance Claim from the following details available from quarterly GST Returns:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 64
Answer:
1. Period of Indemnity (given) = 3 months (15.03.2021 to 15.06.2021)
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 65

Question 39.
A fire occurred on 1st February 2018, in the premises of Fbb Ltd. a Retail Store, and business was partially disorganised upto 30th June 2018. The Company was insured under a Loss of Profits Pohey for ₹ 1,25,000 with a six months indemnity Period. From the following information, compute the amount of claim under the
Loss of Profit Policy.

Particulars
Actual Turnover from 1 February to 30th June 2018 ₹ 80,000
Turnover from 1st February to 30th June 2017 ₹ 2,00,000
Turnover from 1st February 2017 to 31st January 2018 ₹ 4,50,000
Net Profit for last Financial Year ₹ 70,000
Insured Standing Charges for last Financial Year ₹ 56,000
Total Standing Charges for last Financial Year ₹ 64,000
Turnover for the last Financial Year ₹ 4,20,000

The Company incurred Additional Expenses amounting to ₹ 6,700 which reduced the loss in Turnover. There was also a saving during the Indemnity Period of ₹ 2,450 in the Insured Standiñg Charges as a result of the fire. There had been a considerable increase in trade since the date of the Last Annual Accounts and it has been agreed that an adjustment of 15% be made in respect of the upward trend in Turnover.
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 68
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 69

Question 40.
The premises of ABC Limited were partially destroyed by fire on 1st March 2019. and as a result, the business was practically disorganised up to 31st August 2019. The Company Is insured under a Loss of Profits Policy for ₹ 1,65,000 having an Indemnity Period of 6 months. From the following information, prepare a claim under the policy:

Particulars
Actual Turnover during the period of dislocation (01-03-2019 to 31-08-2019) ₹ 80,000
Turnover for the corresponding period (dislocation) in 12 months immediately before tire (1-3-2019 to 31-8-2019) ₹ 2,40,000
Turnover for the 12 months immediately preceding the fire (01- 03-2019 to 28-02-2019) ₹ 6,00,000
Net Profit for the last financial year ₹ 90,000
Insured Standing Charges for the last financial year ₹ 60,000
Uninsured Standing Charges ₹ 5,000
Turnover for the last financial year ₹ 5,00,000

Due to a substantial increase in trade, before and up to 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 of ₹ 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.
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 70
Assumption: It is assumed that Trend Adjustment is required on the Total Amount of Annual Turnover. However, part of the Annual Turnover represents the trend-adjusted figure. Alternatively, the students may ignore trend and take only -the given Annual Turnover. The Claim would be ₹ 55,000, which is more than the Claim as computed above. So, it is possible that the Insurance Company would insist on trend adjusted on Annual Turnover.

Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank

Question 41.
From the following information, compute the amount of claim under the loss of profit policy:

Sum Insured ₹ 1,00,000
Indemnity Period 6 Months
Reason for Damage Due to Fire Accident on 1.3.2012
Period of Interruption 1.3.2018 to 31.7.2018
Accounting Year Calendar Year
Gross Profit Ratio 30%
Saving in Insured Standing Charges ₹ 6,774
Increase in cost of working ₹ 20,000 for 80% of the turnover
No Clause for Upward/Downward Trend during dislocation period
Turnover for the year ended 31st December 2017 ₹ 5,00,000
Turnover for the period from 1.3.2017 to 28.2.2018 ₹ 5,20,000
Turnover for the period from 1.3.2017 to 31 .7.2017 ₹ 2,60,000
Turnover for the period from 1.3.2018 to 31.7.2018 ₹ 1,00,000
Sales were evenly throughout the period Uninsured Standing Charges ₹ 25,000
Net Profit ₹ 90,000

Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 72
Working Notes:
(i) Agreed G.P. Ratio = G.P. Ratio as per last accounting year + Agreed Increase/Decrease
\(\text { G.P. Ratio }=\frac{\text { Net Profit }+ \text { Insured Standing Charges }}{\text { Turnover of last Accounting year }} \times 100\)
= \(\frac{₹ 90,000 \times ₹ 35,000}{₹ 5,00,000} \times 100\) = 25%
Notes: All Standing Charges = Gross Profit – Net Profit
= 30% of ₹ 5,00,000 – ₹ 90,000 = ₹ 1,50,000 – ₹ 90,000 = ₹ 60,000
Insured Standing Charges = All Standing Charges less Uninsured Standing Charges
= ₹ 60,000 – ₹ 25,000 = ₹ 35,000
(ii) Claim Penad being the least of the Indemnity Period (6 months) & Dislocation Period (5 months) is 5 months.
(iii) Calculation of Turnover lost in claim period
A. Turnover for the corresponding daim period in the preceding year ₹ 2,60,000
B. Add: Agreed Increase –
C. Less: Actual Turnover during the daim period ₹ 1,00,000
D. Turnover lost in claim penad (A + B – C) 1,60,000

(iv) Gross Profit lost = Turnover last during the claim period × Agreed G.P. Ratio
= 1.60,000 × 25%= ₹40,000
(v) Sum Insurable = Adjusted Turnover during 12 months immediately preceding the fire × Agreed G.P. Ratio
= ₹ 5,20,000 × 25% = ₹ 1,30,000
(vi) Calculation of the-Net daim for the Increased Cost of Working
A. Gross claim for Increased Cost of Working (being the least of the following three amounts) ₹ 16.774
1. Actual Expenses ₹ 20,000
2. Proportionate Increase in Cost of Working
\(₹ 20,000 \times \frac{25 \% \text { of } 5,20,000}{₹ 1,30,000+₹ 25,000}=\) = ₹ 16,774
3. Maximum saving of liability of the insurer = Reduction in Turnover avoided through increased Cost of Working × Agreed G.P. Ratio
= 80,000 × 25% = ₹ 20,000
B. Less: Saving in Insured Standing Charges ₹ 6.774
C. Net Claim for Increased Cost of Working (A-B) ₹ 10,000

Question 42.
From the following information, compute the amount of claim under the loss of profit policy:

Sum Insured ₹ 1.20 Lakh
Indemnity Period 6 Months
Reason for Damage Due to Fire Accident on 1.3.2018
Period of Interruption 1.3.2018 to 31.7.2018
Accounting Year Calendar Year
Gross Profit Ratio 25%
Increase in Cost of working ₹ 0.30 Lakh
Saving in Insured Standing Charges ₹ 0.09478 Lakh
Turnover For the year ended 31st Dec., 2017 ₹ 10.00 Lakh
Turnover For the period from 1.3.2017 to 28.2.2018 ₹ 9.00 Lakh
Turnover For the period from 1.3.201710 31.7.2017 ₹ 5.00 Lakh
Turnover For the period from 1.3.2018 to 31.7.2018 ₹ 3.00 Lakh
Sales were evenly throughout the period Standing Charges (out of which ₹ 50,000 have not been insured) ₹ 2.50 Lakh
No clause for upward/Downward Trend

Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 73

(vi) Calculation of the Net claim for the Increased Cost of Working
A. Gross claim for Increased Cost of Working (being the least of the following three amounts) ₹ 23,478
1. Actual Expenses ₹ 30,000
2. Proportionate Increase in Cost of Working
\(\text { Increased Cost of Working } \times \frac{\text { Gross Profit on Adjusted Turnover }}{\text { Gross Profit as above }+ \text { Uninsured Standing Charges }} \)
= \(₹ 30,000 \times \frac{20 \% \text { of } ₹ 9,00,000}{₹ 1,80,000+₹ 50,000}\) = ₹ 23,478
3. Maximum saving of liability of the insurer = Reduction in Turnover avoided through Increased Cost of Working × Agreed
G.P. Ratio =₹ 3,00,000 × 20% = ₹ 60,000
B. Less: Saving in Insured Standing Charges ₹ 9.478
C. Net claim for Increased Cost of Working (A – 13) ₹ 14,000
(vii) In the absence of information, it has been assumed that the Actual Turnover in the claim period has been affected as a result of additional expenses.

Question 43.
From the following information, compute the amount of daim under the loss of profit policy:

Sum Insured ₹ 1,24,200
Indemnity Period 6 Months
Reason for Damage Due to Fire Accident on 1.3.2018
Period of Interruption 1.3.2018 to 31.7.2018
Accounting Year Calendar Year
Net Profit for 2011 ₹ 70,000
Increase in cost of working ₹ 6,700
Saving in Insured Standing Charges ₹ 2,522
Turnover For the year ended 31st December 2017 ₹ 420,000
Turnover For the period from 1.3.2017 to 28.2.2018 ₹ 4,50,000
Turnover For the period from 1.3.2017 to 31.7.2017 ₹ 2,10,000
Turnover For the period from 1.3.2018 to 31.7.2018. ₹ 75,000
Sales were evenly throughout the period,
Standing Charges (Out of which ₹ 8,000 have not been insured)
₹ 64,000
Agreed Increase for upward trend in turnover 15%

Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 74

Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank

Question 44.
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:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 76
Further detail provided is as below:
(a) Sales, Purchases, Wages and Manufacturing Expenses for the period
01.04.2011 to 30.06.2011 were ₹ 3,36,000, ₹ 2,14,000 ₹ 51,000 and ₹ 12,000 respectively.
(b) Other Sales figure were as follows:
From 01.04.2010 to 30.06.2010 ₹ 3,00,000
From 01.07.2010 to 30.09.2010 ₹ 3,20,000
From 01.07.2011 to 30.09.2011 ₹ 48,000
(c) Due to decrease in the material cost, Gross Profit during 2011-12 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. (May 2012, 16 marks)
Answer:
Insurance Claims for Loss of Stock and Loss of Profit - CA Inter Accounts Question Bank 77

Leave a Comment

Your email address will not be published. Required fields are marked *