INTER C.A.

– ACCOUNTING

FIRE INSURANCE CLAIM

PART A : THEORY SECTION

LOSS OF STOCK

1. Memorandum trading A/c

(From beginning of the year upto Date of Fire)
To Opening Stock x By Sales x
To Purchases x Less: Sales Return (x) x
Less: Purchase Return (x) x
To Carriage Inwards x
To Wages x By Stock on Fire Date x
To Gross Profit x
(___% of Net sales)
x x

2. Statement of Loss `
Stock on fire Date (SOFD) x
Less: Salvage (-x)
Loss of stock x

3. Statement of claim
Policy ` ________ SOFD ` ________
If Equal / Over Insurance, then claim = Loss
If under insurance then Average Clause is applicable

= `x
Add: Fire fighting expenses `+x
Amount claim xxx

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Important Points:
a. Opening Stock :
i. Opening stock must be of goods only if any other item is included then it
must be removed.
ii. Opening stock must be always valued at cost if it is under / over valued
then it must be adjusted and brought to cost.
Eg.1 Stock is valued at 90,000 (It is undervalued by 10%)

Ans. Cost 100 Valued at 90

1,00,000 90,000

Eg.2 Stock valued at 1,10,000 and it is overvalued by 10%.

Ans. Cost 100 Valued at 110
1,00,000 1,10,000

b. Purchases :
i. Purchase means purchase of goods only if any other item is included then
it must be removed.
ii. Purchase means physical purchase i.e. Actual incoming of goods inside the
godown.

∴ Purchase as per purchase books x

Add: Goods received but not recorded x
Less: Goods recorded but not received x
Physical purchase for Memorandum Trading A/c x

c. Expenses : All normal expenses of trading A/c must be taken. If any item of P/L
is given then it must be ignored.

d. Sales :
i. sales means sale of goods only if any other item is included then it must
be removed.
ii. Sales means physical sales i.e. actual goods going out of the business.

∴ Sales as per Sales book x

Add: Goods delivered but not recorded +x

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Less: Goods recorded but not delivered -x

Physical sales for Memorandum Trading A/c x

e. Outgoing of goods from Business.

Eg. i. Goods withdrawn for personal use.
ii. Goods distributed as free samples
iii. Goods lost by theft
iv. Goods sent to agent
v. Goods sent to consignment
vi. Goods sent on approval
vii. Goods sent on Sales / Return
Rules:
1. If amount is normal selling price then add it to sales.
2. If amount is cost then write it as separate item on Credit side of Memorandum
Trading A/c.
Notes: Alternatively Goods sold can be added to sales at SP and unsold Goods
at cost show separately.

f. Gross Profit: Gross Profit should be always related to Net Sales. There can be
following possibilities :
A. Question. Gives Gross Profit % on Net Sales
Answer. Apply Gross Profit % on Net Sales in Memorandum Trading A/c

B. Question. Gives Gross Profit Amount & Net Sales amount of L.Y.
Answer. i. Find Gross Profit % of L.Y. =

ii. Apply the Gross Profit % on Net Sales.

C. Question. Gives Gross Profit % of Last 3 to 4 years

Year I II III IV V
1 25% 40% 20% 30% 40%
2 25% 20% 30% 25% 30%
3 25% 50% 40% 20% 20%
4 25% 30% 50% 15% 10%

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Constant Fluctuating ↑ in trend ↓ in trend ↓ in trend

∴ in MT A/c ∴ take ∴ take Avg. ∴ in M.T. A/c coming down
take 25% Avg. in M.T. in M.T. A/c follow the to 0
A/c take take 35% trend if not ∴ in M.T. A/c
35% coming to take between
zero 0 & 10 say 5%
D. Question. Given details of Trading A/c of L.Y.
Answer. Prepare L.Y. Trading A/c. Find Gross Profit amount and Gross
Profit %.

E. Question. Gives on gross Profit on Cost

Answer. Convert gross Profit on Cost – to Gross Profit on Sales
of cost = of sales

G. Salvage : It means goods saves from fire salvage must be taken at cost or
market price whichever is less.

H. Fire fighting expense : Paid must be added to the amount of claim, in case of
under insurance, but maximum claim will be not more than policy amount

NORMAL & ABNORMAL GOODS

1. Normal goods are those on which normal Gross Profit is earned.

2. Abnormal goods are those goods on which normal Gross Profit is not earned.
Abnormal goods can be sold at:
 Higher selling price
 Lower selling price
 At No Profit No Loss
 At Loss

3. Effect of abnormal goods must be removed from Last Year trading A/c as well as
Memorandum trading A/c. Rules to be followed:
Items of M.T. A/c Rule for Removal
a. Opening and Closing stock Valued figure of stock
b. Purchases Cost price of Abnormal goods
c. Sales Selling price of Abnormal goods

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4. If Abnormal goods are included in Sales / Closing Stock then they must be included
either in Opening stock / Purchases.

5. Maintain record of Abnormal goods in the statement of loss at cost.

LOSS OF PROFIT

Important terms:
1. Indemnity Period : It is period covered by Insurance Company in its policy.

2. Dislocation Period : It is the period affected due to fire.

3. Standing charges : These are fixed expenses which are normally incurred by any
organisation. These expenses may be insured / uninsured.

4. Gross Profit : In this topic Gross Profit means operating Net Profit + insured standing
charges.

5. Additional expenses or extra cost of working : If insured has incurred some expense
to increase actual sales during indemnity period Eg. Rent paid for an alternative
premise during the period of dislocation. Such expenses will also be compensated
by the insurance company.

6. Annual Turnover : It is the turnover of 12 months preceding the date of fire.

7. Standard turnover : It is the turnover of last year corresponding to the period of

dislocation.

8. Financial Turnover : It is the turnover of last financial year / accounting year.

9. Actual turnover : It is the turnover during the period of dislocation.

10. Short Sales : Loss of Turnover also called as Sales that could have happened but did
not happen.

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FORMAT :
Step 1 : Find Gross Profit %
Gross Profit % =

* Note : If the trend for Gross Profit is given then it must be adjusted.
∴ Adjusted Gross Profit = Gross Profit Ratio + Trend.

Step 2 : Find Short Sales

Short Sales = Adjusted standard Turnover- Actual Turnover

Step 3 : Find Loss of Profit

Loss of Profit = Short Sales × Gross Profit %

Step 4 : Calculate claim for Additional expenses

a. Actual Additional expenses xx
OR
b. Gross Profit on Additional Sales
Additional Sales × Gross Profit % xx
Note: If additional sales is not given then assume
Additional Sales = Actual Sales
OR
c. Proportionate Amount

Adjusted Annual Turnover = Annual turnover + Trend
For claim a/b/c/ whichever is less

Step 5 : Calculate Saving in cost

Step 6 : Statement of gross Claim

Loss of profit (Step 3) x
Add: Additional Expenses (Step 4) +x
Less: Saving on cost (Step 5) (- x)
Gross claim _____

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Step 7 : If Average Clause is applicable

Gross Profit on Adjusted Annual turnover > Policy Amount

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PART B : CLASSWORK SECTION

LOSS OF STOCK
Question 1
Fire occurred in the godown of M/s. SUN BEAM LTD., on 4th May, 2017. All the stock was
destroyed with the exception of goods ` 13,000. Following particulars are available from
the Books of Accounts of the Firm :
`
Stock on 1st January, 2016 36,000
Stock on 31st December, 2016 66,000
Purchase during 2016 4,80,000
Sales during 2016 6,00,000
Purchases during 2017 upto the date of fire 2,30,000
Sales during 2017 upto the date of fire 3,00,000

On 20th December, 2016 also fire broke out and destroyed stock at genuine cost `
10,000. There was a practice in the firm to value stock at cost less 10%. But all of a
sudden they changed this practice and valued stock on 31st Dec. 2016 at cost plus 10%.
The amount of the policy was ` 40,000 and claim was subject to an average clause.

Question 2
The following information is available from the books of a company whose premises were
destroyed by a fire on 31st May, 2017:
`
Stock 1.1.2016 90,000
Purchases 1.1.2016 to 31.12.2016 4,24,000
Sales 1.1.2016 to 31.12.2016 5,00,000
Stock 31.12.2016 1,32,000
The stock on 1st January, 2016 was valued at 90% of cost. However this practice was
changed and the stock on 31st December, 2016 was valued at 110% of cost. After the
accounts of 2016 were audited it was found that purchase of office equipment of ` 4,000
was wrongly included in the figure of purchases given above.
The information for the period of 1st January, 2017 to 31st May, 2017 is as follows:
Purchases 3,00,000
Sales (excluding goods sent on sale or return basis) 4,00,000

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During January to May 2017 goods of the cost price of ` 40,000 were sent to customers on
sale or return basis. On the date of fire customers had approved half the value of goods
sent. The Gross Profit margin charged on the above is the normal margin. The salvage was
` 10,000. Calculate the amount of the claim to be submitted to the Insurance Company.

Question 3
A fire had broken in the factory of M TRADERS on 17th October, 2016 and destroyed the
stock of goods in their godown. The following figures are available:
`
Opening stock on 1. 1. 2015 31,570
Sales during the year of 2015 3,50,000
Purchases during the year of 2015 1,83,200
Purchase from 1. 1. 2016 to 17.10.2016 1,63,300
Sales from 1. 1. 2016 to 17.10.2016 2,69,350
Closing stock on 31.12.2015 40,590

Other details are as follows:

(a) A theft took place in September, 2016 and goods of sales value of ` 19,040 were
stolen and lost but were not recorded in the books.
(b) Goods costing ` 5,205 were given away as free samples in 2016 but no entries
were passed.
(c) The goods saved from fire were subsequently sold by the firm for ` 17,600 at a loss
of ` 1,200.
(d) The stock of goods was insured by the firm for ` 38,100 and there was an average
clause in the policy.
(e) The firm as a practice valued the stock of goods at 10% above cost.
Calculate the amount of claim.

Question 4
A fire occurred in the premises of M/s. Fire proof Co. on 31st August, 2016. From the
following particulars relating to the period from 1st April, 2016 to 31st August, 2016, you
are requested to ascertain the amount of claim to be filed with the insurance company
for the loss of stock. The concern had taken an insurance policy for ` 60,000 which is
subject to an average clause.

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`
(i) Stock as per Balance Sheet at 31-03-2016 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 consignee on 16th August, 2016, lying unsold 16,500
with them
(vii) Cost of goods distributed as free samples 1,500

While valuing the stock at 31st March, 2016, ` 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.

Question 5
On 30th March, 2012 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
1st January to 30th March 2012.
(1) Stock as per Balance Sheet at 31st December, 2011, ` 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 claim to be lodged to the insurance
company.

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Question 6
On 1st 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 1st 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 31st 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 – Group I)

Question 7
A fire occurred in the godown of Maruti Ltd. on 31.3.2017 destroying the major portion of
the stock. The following particulars were, however, available.
`
Stock on 1. 1. 2016 31,400
Stock on 31.12.2016 35,600
Sales for the year 2016 1,00,500
Sales from 1.1.2017 to 31.3.2017 40,250
Purchases for the year 2016 80,000
Purchases from 1.1.2017 to 31.3.2017 12,600

Included in the stock of 31.12.2015 were some shop-soiled goods which originally cost `
2,000 but were valued at ` 1,400. Half of this stock was sold for ` 500 in the year 2016
and the remaining stock was valued at ` 600 on 31.12.2016. Half of this was sold for `
250 in March, 2017.
The unsold portion was considered to be worth 80% of the original cost. Subject to this
rate of gross profit was uniform.

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The sum insured was ` 15,000 and there was an average clause in the policy. The stock
salvaged worth ` 1,200.
Find out the amount of claim to be lodged with the insurance company for loss of stock.

Question 8
M/s. Inflammable Ltd. suffered loss of stock due to fire on October 31st, 2016. From the
following records calculate claim to be made by the shop.
`
(1) Stock on December 31st 2014 (including stock purchased during the 1,00,000
year at ` 8,000 valued at ` 4,000 because of poor selling line)
(2) Wages paid for 2015 (including paid for capital expenditure ` 2,000, 30,000
wages outstanding 1,500)
(3) Freight for 2015 5,000
(4) Purchase for 2015 (including purchase of furniture ` 1,500) 1,20,000
(5) Sales for 2015 (including sale of 1/4th of the stock for ` 1,000 which 2,46,000
had a poor selling line and which was valued at ` 4,000 on 31st
December, 2014)
(6) Stock on December 31st 2015 (including remaining stock which had a 42,000
poor selling line at the same Basis)
(7) Purchase upto 31st October, 2016 1,42,800
(8) Sales upto 31st October, 2016 (including sale of 1/3rd remaining stock 1,42,900
which had a poor selling line at ` 800)

The abnormal goods were to be valued at 80% of the original cost.

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LOSS OF PROFIT
Question 9
A fire occurred on 1st July, 2016, in the premises of Arolite Ltd., and business was
practically disorganised upto 30th November, 2016. From the books of account, the
following information was extracted :
`
1. Actual turnover from 1st July, 2016, to 30th Nov. 2016 60,000
2. Turnover from 1st July, 2015 to 30th Nov. 2015 2,00,000
3. Net profit for the last financial year 90,000
4. Insured standing charges for the last financial year 60,000
5. Turnover for the last financial year 5,00,000
6. Turnover for the year ending 30th June, 2016 5,50,000
7. Total standing charges for the year 72,000

The company incurred additional expenses amounting to ` 9,000 which reduced the loss
in turnover. There was also a saving during the indemnity period of ` 2,486.
The company holds a "Loss of profit" policy for ` 1,65,000 having an indemnity period for
6 months. There had been a considerable increase in trade and it had been agreed that
an adjustment of 20% be made in respect of upward trend in turnover.
Compute claim under "Loss of Profit insurance.

Question 10
The premises of a company were partly destroyed by fire which took place on 1st March,
2017 and as a result of which the business was disorganised from 1st March to 31st July,
2017. Accounts are closed on 31st December every year. The company is insured under
a Loss of Profits policy for ` 7,50,000. The period of indemnity specified in the policy is
6 months. From the following information, you are required to compute the amount of
claim under the Loss of profits policy:
`
Turnover for the year 2016 40,00,000
Net Profits for the year 2016 2,40,000
Insured standing charges 4,80,000
Uninsured standing charges 80,000
Turnover during the period of dislocation i.e. from 1.3.2017 to 31.7.2017 8,00,000
Standard turnover for the corresponding period in the preceding year i.e.
1.3.2016 to 31.7.2016 20,00,000

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Annual turnover for the year immediately preceding the fire i.e. from
1.3.2016 to 29.2.2017 44,00,000
Increased cost of working 1,50,000
Saving in insured standing charges 30,000
Reduction in turnover avoided through increase in working cost 4,00,000

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%.

Question 11
A Loss of profit policy was taken for ` 80,000. Fire occurred on 15th March, 2017. Indemnity
period was for three months. Net profit for 2016 year ending on 31st December was `
56,000 and standing charges (all insured) amounted ` 49,600. Determine claim from the
following details available from quarterly sales tax returns:
Sales 2014 2015 2016 2017
` ` ` `
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 Sept. 1,00,000 1,10,000 1,20,000 1,00,000
From 1st Oct. to 31st Dec. 1,36,000 1,50,000 1,66,000 1,60,000

Sales from 16.3.2016 to 31.3.2016 were 28,000

Sales from 16.3.2017 to 31.3.2017 were Nil
Sales from 16.6.2016 to 30.6.2016 were 24,000
Sales from 16.6.2017 to 30.6.2017 were 6,000

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Question 12
S & M Ltd. give the following Trading and Profit and Loss Account for year ended 31st
December, 2016:
Trading and Profit and Loss Account for the year ended 31st December, 2016
` `
To Opening Stock 50,000 By Sales 8,00,000
To Purchases 3,00,000 By Closing stock 70,000
To Wages (` 20,000 for skilled
labour)
1,60,000
To Manufacturing expenses 1,20,000
To Gross Profit 2,40,000
8,70,000 8,70,000
To Office Administrative By Gross profit 2,40,000
Expenses 60,000
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

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. A fire occurred on 1st May, 2017 and as a
result of which sales were seriously affected for a period of 4 months. You are given the
following further information:
(a) Purchases, wages and other manufacturing expenses for the first 4 months of 2017
were ` 1,00,000, ` 50,000 and ` 36,000 respectively.
(b) Sales for the same period were ` 2,40,000.
(c) Other sales figures were as follows :
`
From 1st January 2016 to 30th April, 2016 3,00,000
From 1st May 2016 to 31st August, 2016 3,60,000
From 1st May, 2017 to 31st August, 2017 60,000
(d) Due to rise in wages, gross profit during 2017 was expected to decline by 2% on
sales.

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(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.
All workings should form part of your answers.

Question 13
CCL wants to take up a loss of profit policy. Turnover during the current year is expected
to increase by 20%. The company will avail overdraft facilities from its bank @ 15%
interest to boost up the sales. The average daily overdraft balance will be around ` 3
lakhs. All other fixed expenses will remain same. The following further details are also
available from the previous year’s account.
`
Total variable expenses 24,00,000
Fixed expenses
Salaries 3,30,000
Rent, Rates, and Taxes 30,000
Travelling expenses 50,000
Postage, Telegram, Telephone 60,000
Director’s fees 10,000
Audit fees 20,000
Miscellaneous income 70,000
Net Profit 4,20,000

Determine the amount of policy to be taken for the current year.

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PART C : HOMEWORK SECTION

Question 14
On 20th October, 2011, 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 31st March, 2011 2,16,000
Purchases less returns (1.4.2011 to 20.10.2011) 2,80,000
Sales less returns (1.4.2011 to 20.10.2011) 6,20,000

Additional information:
(1) Sales upto 20th October, 2011 includes ` 80,000 for which goods had not been
dispatched.
(2) Purchases upto 20th October, 2011 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.

Question 15
The premises of XY Limited were partially destroyed by fire on 1st March, 2012 and as a
result, the business was practically disorganized upto 31st August, 2012. 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:
(i) Actual turnover during the period of dislocation  `
(1-3-2012 to 31-8-2012)  80,000
(ii) Turnover for the corresponding period (dislocation)
in the 12 months immediately before the fire
(1-3-2011 to 31-8-2011)  2, 40,000
(iii) Turnover for the 12 months immediately preceding
the fire (1-3-2011 to 28-2-2012)  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

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(vii) Turnover for the last financial year  5, 00,000

Due to substantial increase in trade, before and up to the time of the fire, it was 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.

Question 16
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 ` 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 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 41,000
to the date of fire
Cost of goods withdrawn by trader for personal use from 1st April, 2012 to 2,000
the date of fire
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 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.

Question 17
On account of a fire on 15th June, 2012 in the business house of a company, the working
remained disturbed upto 15th December 2012 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 the 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.

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`
Actual sales from 15th June, 2012 to 15th Dec, 2012 70,000
Sales from 15th June 2011 to 15th Dec 2011 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 : 16th June 2011 to 15th June 2012 5,60,000

Question 18
The premises of Emarbee Ltd. were engulfed by fire on 16th November, 2016 whereby
substantial stock was severely destroyed. The records available with the company yield
the following information.
a. For year ended 31st March, 2016 :

` `
To Stocks 1,50,000 By Sales 30,00,000
To Purchases 12,30,000 By Stock 1,80,000
To Freight & Direct Expenses 3,00,000
To Wages 6,00,000
To Gross Profit 9,00,000
31,80,000 31,80,000

b. For half year ended 30th September, 2016

Sales ` 14,00,000
Purchases ` 8,24,000
c. For period from 1st October to date of fire sales and purchases were at same monthly
rate as for period 1st April, 2016 to 30th September, 2016.
d. The Freight, Wages and Direct Expenses during period 1st April, 2016 to date of fire
were at the same rate per month as in the last year.
e. Salvage value is 10% of Cost of Stocks.
f. The sum insured is ` 2,00,000 and policy contains Average Clause.

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Question 19
Wye Ltd. had taken out a loss of profit policy for ` 3,00,000 being ` 1,30,000 for net profit
and ` 1,70,000 for fixed expenses. Expenses to the extent of ` 30,000 were not insured.
During 2015 the company earned a profit of ` 90,000 after charging ` 2,00,000,
standing charges on a sale of ` 32,50,000. On 1st June, 2016 there was a fire as a result
of which sales suffered a great deal for a period of six months.
The details of sales are as under:
2015 2016 2015 2016
January 2,00,000 2,20,000 June 3,60,000 50,000
February 2,00,000 2,20,000 July 4,00,000 50,000
March 2,50,000 2,75,000 August 3,40,000 60,000
April 2,50,000 2,75,000 September 3,00,000 80,000
May 3,00,000 3,30,000 October 2,50,000 1,10,000
November 2,50,000 1,50,000
December 1,50,000 1,80,000

The indemnity period according to the policy was 4 months. ` 2,000 was spent on putting
the fire out and additional expenses as a consequence of fire were ` 16,028 but a saving
of `3,000 was affected. Towards the end of 2015 a machine was installed which would
have resulted in a net saving equal to 2% of sales.

Question 20
Sony Ltd.’s. Trading and profit and loss account for the year ended 31st December, 2011
were as follows:
Trading and Profit and Loss Account for the year ended 31.12.2011
` `
To Opening stock 20,000 By Sales 10,00,000
To Purchases 6,50,000 By Closing stock 90,000
To Manufacturing expenses 1,70,000
To Gross Profit 2,50,000
10,90,000 10,90,000
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

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The company had taken out a fire policy for ` 3,00,000 and a loss of profits policy for
` 1,00,000 having an indemnity period of 6 months. A fire occurred on 1.4.2012 at the
premises and the entire stock was gutted with nil salvage value. The next quarter sale
i.e. 1.4.2012 to 30.6.2012 was severely affected. The following are the other information:

Sales during the period 1.1.12 to 31.3.12 2,50,000

Purchases during the period 1.1.12 to 31.3.12 3,00,000
Manufacturing expenses 1.1.12 to 31.3.12 70,000
Sales during the period 1.4.12 to 30.6.12 87,500
Standing charges insured 50,000
Actual expense incurred after fire 60,000

The general trend of the industry shows an increase of sales by 15% and decrease in
Gross profit by 5% due to increased cost. Ascertain the claim for stock and loss of profit.

Question 21
From the following particulars, you are required to calculate the amount of claim for
Buildwell Ltd., whose business premises was partly destroyed by fire:
Sum insured (from 31st December 2011) ` 4,00,000
Period of indemnity 12 months
Date of damage 1st January, 2012
Date on which disruption of business ceased 31st October, 2012

The subject matter of the policy was gross profit but only net profit and insured standing
charges are included.
The books of account revealed:
(a) The gross profit for the financial year 2011 was ` 3,60,000.
(b) The actual turnover for financial year 2011 was ` 12,00,000 which was also the
turnover in this case.
(c) The turnover for the period 1st January to 31st October, in the year preceding the
loss, was ` 10,00,000.
During dislocation of the position, it was learnt that in November-December 2011, there
has been an upward trend in business done (compared with the figure of the previous
years) and it was stated that had the loss not occurred, the trading results for 2012
would have been better than those of the previous years.
The Insurance company official appointed to assess the loss accepted this view and

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adjustments were made to the pre-damaged figures to bring them up to the estimated
amounts which would have resulted in 2012.
The pre-damaged figures together with agreed adjustments were:
Period Pre- Adjustment Post
damaged to be added Adjusted
figures Figures
` ` `
January 90,000 10,000 1,00,000
Feb. to October 9,10,000 50,000 9,60,000
November to December 2,00,000 10,000 2,10,000
12,00,000 70,000 12,70,000
Gross Profit 3,60,000 46,400 4,06,400

Rate of Gross Profit 30% (actual for 2011), 32% (adjusted for 2012).
Increased cost of working amounted to ` 1,80,000.
There was a clause in the policy relating to savings in insured standard charges during
the indemnity period and this amounted to ` 28,000.
Standing Charges not covered by insurance amounted to ` 20,000 p.a. The actual turnover
for January was nil and for the period February to October 2012 ` 8,00,000.

Question 22
The store house of TOP MANUFACTURER caught fire on 31st March, 2017 and due to fire
a great part of stock was burnt to ashes. The stock was covered by insurance policy of
` 1,00,000 and claim was subject to an average clause From the following information
prepare statement showing claim which Top Manufacturer will get from the insurance
company.
(i) They used to :
(a) Sell goods to wholesalers on one month credit at wholesale price which is a
catalogue price less 15%.
Further cash discount of 5% on wholesale price is allowed to those wholesalers
who made immediate payment.
(b) Sell goods to retailers at retailer’s price which is a catalogue price less 10%.
Terms cash payment only.
(c) Sales to Direct consumers at catalogue price which is cost plus 100%.
(ii) Figure for the goods sold or despatched were:
(a) Credit sale upto 31st March, 2017 to wholesalers at wholesale price ` 3,40,000

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worth.
(b) Net Cash sales (after deducting cash discount) upto 31st March, 2017 wholesalers
` 3,23,000 worth.
(c) Cash sales to retailers upto 31st March, 2017 ` 90,000 worth.
(d) Sales to direct consumers upto 31st March, 2017 ` 3,00,000
(iii) Stock on 1st January, 2017 was ` 2,50,000 at catalogue price. Purchases at catalogue
price from 1st Jan., 2017 to 31st March, 2017 were ` 12,50,000.
(iv) Stock salvaged ` 45,000 at cost price.

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PART D : PAST EXAM QUESTIONS

Question 23
Closing stock for the year ending on 31.3.2010 is ` 50,000 which includes stock damaged
in a fire in 2008-09. On 31.3.2009 the estimated net realisable value of the damaged
stock was ` 12,000. The revised estimate of net realisable value included in closing stock
of 2009-10 is ` 4,000.
Find the value of closing stock to be shown in Profit and Loss account for the year 2009-
2010.  (May 2010)

Question 24
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 lakhs. Stock in the godown was estimated at ` 80 lakhs.
Compute the amount of insurance claim.  (May 2010 - IPCC)

Question 25
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 – IPCC)

Question 26
On 30th March, 2011 fire occurred in the premises 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 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,

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(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 claim to be lodged to the Insurance
Company.  (May 2011 – Accounting)

Question 27
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 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 16th August, 2010, lying
unsold with them 16,500
(vii) Cost of goods distributed as free samples 1,500

While valuing the stock at 31st 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)

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Question 28
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 1 July,
2011 and as a result of which sales were seriously affected for a period of 3 months.
Trading and Profit & Loss A/c of Ramda & Sons for the year ended on 31st March, 2011
is given below:
Particulars ` Particulars `
To Opening Stock 96,000 By Sales 12,00,000
To Purchases 7,56,000 By Closing Stock 1,85,000
To Wages 1,58,000
To Manufacturing Expenses 75,000
To Gross Profit c/d 3,00,000
Total 13,85,000 Total 13,85,000
To Administrative Expenses 83,600 By Gross Profit b/d 3,00,000
To Selling Expenses (Fixed) 72,400
To Commission on Sales 34,200
To Carriage Outward 49,800
To Net Profit 60,000
Total 3,00,000 Total 3,00,000

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)

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Question 29
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 ` 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 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 of fire 41,000
Cost of goods withdrawn by trader for personal use from 1st April,
2012 to the date of fire 2,000
Sales for the year ended 31st March, 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 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)

Question 30
From the following information ascertain the value of stock as on 31st March 2012:
`
Stock as on 01-04-2011 28,500
Purchases 1,52,500
Manufacturing Expenses 30,000
Selling Expenses 12,100
Administration Expenses 6,000
Financial Expenses 4,300
Sales 2,49,000
At the time of valuing stock as on 31st March, 2011 a sum of ` 3,500 was written off
on a particular item, which was originally purchased for ` 10,000 and was sold during
the year of ` 9,000. Barring the transaction relating to this item, the gross profit earned
during the year was 20% on sales.  (Nov. 2012)

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Question 31
On 15th December, 2012, a fire occurred in the premises of M/s. OM Exports. Most of the
stocks were destroyed. Cost of stock salvaged being ` 1,40,000.
From the books of account, the following particulars were available:
(i) Stock at the close of account on 31st 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 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)

Question 32
Monalisa & Co. runs plastic goods shop. Following details are available from quarterly
sales tax return filed.
Sales 2009 2010 2011 2012
` ` ` `
From 1st January to 31st March 1,80,000 1,70,000 2,05,950 1,62,000
From 1st April to 30th June 1,28,000 1,86,000 1,93,000 2,21,000
From 1st July to 30th September 1,53,000 2,10,000 2,31,000 1,75,000
From 1st October to 31st December 1,59,000 1,47,000 1,90,000 1,48,000
Total 6,20,000 7,13,000 8,19,950 7,06,000

Period `
Sales from 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 (all
insured) amounted to ` 43,990 for year ending 2011.
Determine the Insurance Claim?  (Nov. 2013 – Group I)

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Question 33
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 goods salvaged was estimated at ` 27,000. The
average rate of Gross Profit was 20% throughout the period.
Particulars Amount
in `
i Opening Stock 1,20,000
ii 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
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 – Group I)

Question 34
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:
Particulars Amount
in `
Variable Expenses
Cost of Materials 18,60,000
Fixed Expenses
Wages for skilled craftsmen 1,60,000
Salaries 2,80,000
Audit Fees 40,000
Rent 64,000
Bank Charges 18,000
Interest income 44,000
Net Profit 6,72,000

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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 – Group I)

Question 35
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:
Period `
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 sales, trader has to incur additional expenditure of ` 42,500.
 (Nov. 2015 – Group I)

Question 36
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 manufacturing 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) If 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%.

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(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 – Group I)

Question 37
What are Consequential loss policy and what items are generally covered by such
policy?  (May 2017 – Group I)

Question 38
On 27th July, 2016, a fire occurred in the godown of M/s. Vijay Exports and most of the
stocks were destroyed. However goods costing ` 5,000 could be salvaged. Their fire-
fighting 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 claim 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 – Group I)

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Question 39
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 31st December, 2017 ` 1,91,200
(ii) Purchases (including purchase of machinery costing ` 60,000) ` 3,40,000
(iii) Wages (including wages ` 6,000 for installation of machinery) ` 1,00,000
(iv) Sales (including goods sold on approval basis amounting to ` 99,000) ` 5,50,000
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 – Group I)

Question 40
A fire occurred in the premises of M/s. Raxby & Co. on 30-06-2017. From the salvaged
accounting records, the following particulars were ascertained:
`
Stock at cost as on 01/04/2016 1,20,000
Stock at cost as on 31/03/2017 1,30,000
Purchases less return during 2016 – 17 5,25,000
Sales less return during 2016 – 17 6,00,000
Purchases from 01/04/2017 to 30/06/2017 97,000
Purchases up to 30-06-2017 did not include ` 35,000 for which purchase invoices had
not been received from suppliers, though goods have been received in godown.
Sales from 01/04/2017 to 30/06/2017 1,66,000
In valuing the stock for the Balance Sheet at 31st March, 2017, ` 5,000 had been written
off on certain stock which a poor was selling line having the cost of ` 8,000. A portion of
these goods were sold in May, 2017 at a loss of ` 1,000 on original cost of ` 7,000. The
remainder of the stock was now estimated to be worth its original cost. Subject to that
exception, gross profit had remained at a uniform rate throughout the year.
The value of the salvaged stock was ` 10,000. M/s. Raxby & Co. had insured their stock
for ` 1,00,000 subject to average clause.
Compute the amount of claim to be lodged to the insurance company. 
 (May 2018 – Group I)

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Question 41
A fire 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 31st 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 up to 30th September, 2017, include ` 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 – Inter)

Question 42
Unfortunate Ltd. has a godown, a shop and a manufacturing unit. Godown is used to
store goods purchased for manufacture as well as to store finished goods. Goods are
transferred from godown everyday in the morning to manufacturing unit and shop.
Inventory in godown is insured for ` 20 lakhs, that of manufacturing unit for ` 30 lakhs
and of the shop for ` 5 lakhs.
As on 31.12.17 inventory in godown at cost was ` 26 lakhs, inventory in manufacturing
unit at cost was ` 12 lakhs and inventory in shop at cost was ` 5 lakhs.
Following transactions took place during the period mentioned:

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 (` in lakhs)

Particulars Jan. '18 Feb. '18 March '18 1st Apr. - 28th Apr.
Purchases 20 15 16 8
Returns to suppliers ---- ---- 4 ----
Stock transfer to shop 26 20 25 10
Returns from shop 1 ---- 1 1
Sales in shop @ GP:
10% 10 12 8 4
12% 18 12 15 5
Fire occurred in shop in the midnight of 27th April – 28th April, 2018 and the entire stock
was engulfed in fire. Good costing ` 40,000 could be salvaged intact and balance goods
were recovered in damaged condition.
Expenses of fire fighting/salvage operation amounted to ` 20,000. Goods recovered in
damaged condition could be sold @ 40% of cost. The insurance policy had average clause.
Compute the claim to be lodged with Insurance Co.
 (Nov. 2018 – IPCC Group I)

Question 43
A fire occurred in the premises of M/s Bright on 25th May, 2017. As a result of fire, sales
were adversely affected up to 30th 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 30th September, 2017 ` 1,75,000
Turnover from 25th May, 2016 to 30th 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 24th 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.
 (10 Marks – May 2019 – Inter)

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Question 44
A fire occurred in the premises of M/s Garden Springs & Co., on 30th September 2017. From
the following particulars relating to the period from 1st April 2017 to 30th September
2017, 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 ` 97,500
which is subject to average clause. The value of goods salvaged was estimated at `
35,100. The average rate of gross profit was 20% throughout the period.
Particulars Amount in
(` )
(i) Opening stock 1,56,000
(ii) Purchases made 3,12,000
(iii) Wages paid (including wages for the installation of a machine -` 97,500
6,500)
(iv) Sales 4,03,000
(v) Goods taken by the Proprietor (sales value) 32,500
(vi) Cost of goods sent to consignee on 20th September, 2017, lying 23,400
unsold with them
(vii) Free Samples distributed – Cost 3,250
 (10 Marks – Nov 2019 – Inter)

Question 45
A fire occurred in the premises of M/s Kirti & Co. on 15th December, 2018. The working
remained disturbed upto 15th March, 2019 as a result of which sales got 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:

Sales 2015-16 2016-17 2017-18 2018-19

(`) (`) (`) (`)
From 1st April to 30th June 3,80,000 3,15,000 4,11,900 3,24,000
From 1st July to 30th September 1,86,000 3,92,000 3,86,000 4,42,000
From 1st October to 31st December 3,86,000 4,00,000 4,62,000 3,50,000
From 1st January to 31st March 2,88,000 3,19,000 3,80,000 2,96,000
Total 12,40,000 14,26,000 16,39,900 14,12,000

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A period of 3 months (i.e. from 16-12-2018 to 15-3-2019) 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.
 (10 Marks – Nov 2019 – Inter)

Question 46
ABC Ltd. has insured itself under a loss of profit policy for ` 3,30,000 with indemnity
period of 8 months under average clause. A fire occurred in the factory on 01-01-2019
and normal business was affected up to 30-04-2019.
From the following information, prepare a Statement of Claim under the policy:
Actual Turnover over the period of dislocation (01-01-2019 to
30-4-2019) 50,000
Turnover for 12 months immediately preceding the date of fire
(01-01-2018 to 31-12-2018) 10,00,000
Turnover for corresponding period in 12 months immediately
preceding the date of fire (01-01-2018 to 30-04-2018) 4,50,000
Turnover for last financial year 12,00,000
Net Profit for last financial year 3,00,000
Uninsured Standing charges 18,000
Insured Standing charges for the last financial year 60,000
Following increases are approved in the policy:
(i) Increase in G.P. rate by 2%
(ii) Increase in turnover by 10%
There was an additional cost of working of ` 20,000 during dislocation period. Due to
this additional cost there was a saving of ` 5,000 in insured standing charges during
the indemnity period and but for this additional cost the turnover during the period of
dislocation would have been only ` 35,000.
 (8 Marks – Nov 2019 – IPCC)

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Question 47
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 clause. 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 for installation of machinery costing `7,000) 85,000
Sales from 01-04-2019 to 30-09-2019 6,02,000
Sales value of goods drawn by partners (1-4-19 to 30-9-19) 52,000
Cost of goods sent to consignee on 18th 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 portion 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 original 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.  (10 Marks – Nov 2020 – Inter)

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Question 48
A fire occurred on 1st February, 2019, in the premises of Omkar Limited, a retail store
and business was partially disorganized up to 30th June, 2019. The Company was
insured under a loss of Profits for ` 2,50,000 with a six months period indemnity. From
the following information, compute the amount of claim under the loss of profit policy
assuming entire sales during interrupted period was due to additional expenses.
Particulars Amount in `
Actual sales from 1st February 2019 to 30th June, 2019 1,60,000
Sales from 1st February, 2018 to 30th June, 2018 4,00,000
Sales from 1st February, 2018 to 31st January, 2019 9,00,000
Net Profit for last financial year 1,40,000
Insured standing charges for last financial year 1,12,000
Total standing charges for last financial year 1,28,000
Sales for last financial year 8,40,000
The company incurred additional expenses amounting to ` 13,400 which reduced the loss
in turnover. There was also a saving during the indemnity period ` 4,900 in the insured
standing charges as a result of 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.  (8 Marks – Nov 2020 – IPCC)

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