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Page 1
Insurance Claims
Q-1 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 36,00,000
Standing charges in last financial year 7,20,000
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 ` 50,000.
Ans.(a) Calculation of Gross Profit
Gross Profit =
Net Profit + Standing Charges
×100
Turn over
= (3,60,000 + 7,20,000)/ 36,00,000= 30%
(b) Calculation of policy amount to cover loss of profit
`
Turnover in the last financial year 36,00,000
Add: 25% increase in turnover 9,00,000
45,00,000
Gross profit on increased turnover 13,50,000
Add: Additional standing charges 50,000
Policy Amount 14,00,000
Therefore, the trader should go in for a loss of profit policy of ` 14,00,000.
Q-2 A fire occurred in the premises of M/s Kirti & Co. on 15
th
December, 2018. The working remained
disturbed upto 15
th
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 form the quarterly sales tax return filed / GST return filed :
Sales 2015-16 2016-17(`) 2017-18 (`) 2018-19(`)
From 1
st
April to 30
th
June 3,80,000 3,15,000 4,11,900 3,24,000
From 1
st
July to 30
th
September 1,86,000 3,92,000 3,86,000 4,42,000
I From 1
st
October to 31
st
December 3,86,000 4,00,000 4,62,000 3,50,000
From 1
st
January to 31
st
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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Page 2
Insurance Claims
Q-1 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 36,00,000
Standing charges in last financial year 7,20,000
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 ` 50,000.
Ans.(a) Calculation of Gross Profit
Gross Profit =
Net Profit + Standing Charges
×100
Turn over
= (3,60,000 + 7,20,000)/ 36,00,000= 30%
(b) Calculation of policy amount to cover loss of profit
`
Turnover in the last financial year 36,00,000
Add: 25% increase in turnover 9,00,000
45,00,000
Gross profit on increased turnover 13,50,000
Add: Additional standing charges 50,000
Policy Amount 14,00,000
Therefore, the trader should go in for a loss of profit policy of ` 14,00,000.
Q-2 A fire occurred in the premises of M/s Kirti & Co. on 15
th
December, 2018. The working remained
disturbed upto 15
th
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 form the quarterly sales tax return filed / GST return filed :
Sales 2015-16 2016-17(`) 2017-18 (`) 2018-19(`)
From 1
st
April to 30
th
June 3,80,000 3,15,000 4,11,900 3,24,000
From 1
st
July to 30
th
September 1,86,000 3,92,000 3,86,000 4,42,000
I From 1
st
October to 31
st
December 3,86,000 4,00,000 4,62,000 3,50,000
From 1
st
January to 31
st
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
31
st
March, 2018.
You are required to calculate the loss of profit claim amount.
Ans. Gross profit ratio
`
Net profit for the year 2017-18 2,50,000
Add: Insured standing charges 77,980
3,27,980
Ratio of Gross profit = = 20%
16,39,900
3,27,980
Calculation of Short sales
Indemnity period: 16.12.2018 to 15.3.19
Standard sales to be calculated on basis of corresponding period of year 2017-18
`
Sales for period 16.12.2017 to 31.12.17 68,000
Sales for period 1.1.2018 to 15.3.2018 (Note 1) 2,60,000
Sales for period 16.12.2017 to 15.3.2018 3,28,000
Add: upward trend in sales (15%) (Note 2) 49,200
Standard Sales (adjusted) 3,77,200
Actual sales of disorganized period
Calculation of sales from 16.12.18 to 15.3.19
Sales for period 16.12.18 to 31.12.18 Nil
Sales for 1.1.19 to 15.3.19 (` 2,96,000 – ` 40,000) 2,56,000
Actual Sales 2,56,000
Short Sales (` 3,77,200 - ` 2,56,000) 1,21,200
Loss of gross profit
Short sales x gross profit ratio = 1,21,200 x 20% 24,240
Application of average clause
policy value
Net claim = Gross claim ×
gross profit on annual turnover
= 24,240 x
? ?
2,50,000
3,26,240 W.N.3
Amount of loss of profit claim = ` 18,575
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Page 3
Insurance Claims
Q-1 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 36,00,000
Standing charges in last financial year 7,20,000
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 ` 50,000.
Ans.(a) Calculation of Gross Profit
Gross Profit =
Net Profit + Standing Charges
×100
Turn over
= (3,60,000 + 7,20,000)/ 36,00,000= 30%
(b) Calculation of policy amount to cover loss of profit
`
Turnover in the last financial year 36,00,000
Add: 25% increase in turnover 9,00,000
45,00,000
Gross profit on increased turnover 13,50,000
Add: Additional standing charges 50,000
Policy Amount 14,00,000
Therefore, the trader should go in for a loss of profit policy of ` 14,00,000.
Q-2 A fire occurred in the premises of M/s Kirti & Co. on 15
th
December, 2018. The working remained
disturbed upto 15
th
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 form the quarterly sales tax return filed / GST return filed :
Sales 2015-16 2016-17(`) 2017-18 (`) 2018-19(`)
From 1
st
April to 30
th
June 3,80,000 3,15,000 4,11,900 3,24,000
From 1
st
July to 30
th
September 1,86,000 3,92,000 3,86,000 4,42,000
I From 1
st
October to 31
st
December 3,86,000 4,00,000 4,62,000 3,50,000
From 1
st
January to 31
st
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
31
st
March, 2018.
You are required to calculate the loss of profit claim amount.
Ans. Gross profit ratio
`
Net profit for the year 2017-18 2,50,000
Add: Insured standing charges 77,980
3,27,980
Ratio of Gross profit = = 20%
16,39,900
3,27,980
Calculation of Short sales
Indemnity period: 16.12.2018 to 15.3.19
Standard sales to be calculated on basis of corresponding period of year 2017-18
`
Sales for period 16.12.2017 to 31.12.17 68,000
Sales for period 1.1.2018 to 15.3.2018 (Note 1) 2,60,000
Sales for period 16.12.2017 to 15.3.2018 3,28,000
Add: upward trend in sales (15%) (Note 2) 49,200
Standard Sales (adjusted) 3,77,200
Actual sales of disorganized period
Calculation of sales from 16.12.18 to 15.3.19
Sales for period 16.12.18 to 31.12.18 Nil
Sales for 1.1.19 to 15.3.19 (` 2,96,000 – ` 40,000) 2,56,000
Actual Sales 2,56,000
Short Sales (` 3,77,200 - ` 2,56,000) 1,21,200
Loss of gross profit
Short sales x gross profit ratio = 1,21,200 x 20% 24,240
Application of average clause
policy value
Net claim = Gross claim ×
gross profit on annual turnover
= 24,240 x
? ?
2,50,000
3,26,240 W.N.3
Amount of loss of profit claim = ` 18,575
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Working Notes:
1. Sales for period 1.1.18 to 15.3.18 `
Sales for 1 Jan. to 31 March (2017-18) (given) 3,80,000
Less: Sales for 16.3.18 to 31.3.18 (given) (1,20,000)
Sales for period 1.1.18 to 15.3.18 2,60,000
2. Calculation of upward trend in sales
Total sales in year 2015-16 = ` 12,40,000
Increase in sales in year 2016-17 as compared to 2015-16 = ` 1,86,000
% increase =
1,86,000 (14,26,000 - 12,40,000)
= 15%
12,40,000
Increase in sales in year 2017-18 as compared to year 2016-17
% increase =
2,13,900 (16,39,900 - 14,26,000)
= 15%
14,26,000
Thus annual percentage increase trend is of 15%
3. Gross profit on annual turnover `
Sales from 16.12.17 to 30.12.17 (adjusted) (68,000 x 1.15) 78,200
1.1.18 to 31.3.18 (adjusted) (3,80,000 x1.15) 4,37,000
1.4.18 to 30.6.18 3,24,000
1.7.18 to 30.9.18 4,42,000
1.10.18 to 15.12.18 (3,50,000 – Nil) 3,50,000
Sales for 12 months just before date of fire* 16,31,200
Gross profit on adjusted annual sales @ 20% 3,26,240
NOTE*: Alternatively, the annual adjusted turnover may be computed as ` 17,98,000 (` 15,64,000 X
1.15) considering the annual % increase trend for the entire period of last 12 months preceding to the
date of fire. In that case, the gross profit on adjusted annual sales @ 20% will be computed as ` 3,59,720
and net claim will be computed accordingly.
Q-3 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.
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Page 4
Insurance Claims
Q-1 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 36,00,000
Standing charges in last financial year 7,20,000
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 ` 50,000.
Ans.(a) Calculation of Gross Profit
Gross Profit =
Net Profit + Standing Charges
×100
Turn over
= (3,60,000 + 7,20,000)/ 36,00,000= 30%
(b) Calculation of policy amount to cover loss of profit
`
Turnover in the last financial year 36,00,000
Add: 25% increase in turnover 9,00,000
45,00,000
Gross profit on increased turnover 13,50,000
Add: Additional standing charges 50,000
Policy Amount 14,00,000
Therefore, the trader should go in for a loss of profit policy of ` 14,00,000.
Q-2 A fire occurred in the premises of M/s Kirti & Co. on 15
th
December, 2018. The working remained
disturbed upto 15
th
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 form the quarterly sales tax return filed / GST return filed :
Sales 2015-16 2016-17(`) 2017-18 (`) 2018-19(`)
From 1
st
April to 30
th
June 3,80,000 3,15,000 4,11,900 3,24,000
From 1
st
July to 30
th
September 1,86,000 3,92,000 3,86,000 4,42,000
I From 1
st
October to 31
st
December 3,86,000 4,00,000 4,62,000 3,50,000
From 1
st
January to 31
st
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
31
st
March, 2018.
You are required to calculate the loss of profit claim amount.
Ans. Gross profit ratio
`
Net profit for the year 2017-18 2,50,000
Add: Insured standing charges 77,980
3,27,980
Ratio of Gross profit = = 20%
16,39,900
3,27,980
Calculation of Short sales
Indemnity period: 16.12.2018 to 15.3.19
Standard sales to be calculated on basis of corresponding period of year 2017-18
`
Sales for period 16.12.2017 to 31.12.17 68,000
Sales for period 1.1.2018 to 15.3.2018 (Note 1) 2,60,000
Sales for period 16.12.2017 to 15.3.2018 3,28,000
Add: upward trend in sales (15%) (Note 2) 49,200
Standard Sales (adjusted) 3,77,200
Actual sales of disorganized period
Calculation of sales from 16.12.18 to 15.3.19
Sales for period 16.12.18 to 31.12.18 Nil
Sales for 1.1.19 to 15.3.19 (` 2,96,000 – ` 40,000) 2,56,000
Actual Sales 2,56,000
Short Sales (` 3,77,200 - ` 2,56,000) 1,21,200
Loss of gross profit
Short sales x gross profit ratio = 1,21,200 x 20% 24,240
Application of average clause
policy value
Net claim = Gross claim ×
gross profit on annual turnover
= 24,240 x
? ?
2,50,000
3,26,240 W.N.3
Amount of loss of profit claim = ` 18,575
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Working Notes:
1. Sales for period 1.1.18 to 15.3.18 `
Sales for 1 Jan. to 31 March (2017-18) (given) 3,80,000
Less: Sales for 16.3.18 to 31.3.18 (given) (1,20,000)
Sales for period 1.1.18 to 15.3.18 2,60,000
2. Calculation of upward trend in sales
Total sales in year 2015-16 = ` 12,40,000
Increase in sales in year 2016-17 as compared to 2015-16 = ` 1,86,000
% increase =
1,86,000 (14,26,000 - 12,40,000)
= 15%
12,40,000
Increase in sales in year 2017-18 as compared to year 2016-17
% increase =
2,13,900 (16,39,900 - 14,26,000)
= 15%
14,26,000
Thus annual percentage increase trend is of 15%
3. Gross profit on annual turnover `
Sales from 16.12.17 to 30.12.17 (adjusted) (68,000 x 1.15) 78,200
1.1.18 to 31.3.18 (adjusted) (3,80,000 x1.15) 4,37,000
1.4.18 to 30.6.18 3,24,000
1.7.18 to 30.9.18 4,42,000
1.10.18 to 15.12.18 (3,50,000 – Nil) 3,50,000
Sales for 12 months just before date of fire* 16,31,200
Gross profit on adjusted annual sales @ 20% 3,26,240
NOTE*: Alternatively, the annual adjusted turnover may be computed as ` 17,98,000 (` 15,64,000 X
1.15) considering the annual % increase trend for the entire period of last 12 months preceding to the
date of fire. In that case, the gross profit on adjusted annual sales @ 20% will be computed as ` 3,59,720
and net claim will be computed accordingly.
Q-3 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.
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Ans. Computation of the amount of claim for the loss of profit
1. Reduction in turnover `
Turnover from 25th May, 2016 to 30th September, 2016 6,00,000
Add: 10% expected increase 60,000
6,60,000
Less: Actual Turnover from 25th May, 2017 to 30th September, 2017 (1,75,000)
Short Sales 4,85,000
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) Additional Exp. x G.P . on Adjusted Annual Turnover
G.P . as above + Uninsured Standing Charges
30,000x [3,85,000/(3,85,000+1,25,000)] = ` 22,647
(iii) G.P . on sales generated by additional expenses
175000 x 25% = ` 43,750
It is given that entire sales during the interrupted period was due to additional expenses.
Therefore, lower of above is (i, ii & iii) ` 22,647
1,43,897
Less: Saving in Insured Standing Charges (5,000)
Amount of claim before application of Average Clause 1,38,897
3. Application of Average Clause:
Amount of Policy x Amount of Claim
G.P. on Annual Turnover
(3,50,000/ 3,85,000) x 1,38,897= ` 1,26,270
Amount of claim under the policy = ` 1,26,270
Working Notes:
1. Rate of Gross Profit for last Financial Year: `
Net Profi t for last financial year 2,00,000
Add: Insured Standing Charges 1,75,000
Gross Profit 3,75,000
Turnover for the last financial year 15,00,000
Rate of Gross Profit =
3,75,000
×100
15,00,000
= 25%
2. Annual Turnover (adjusted):
Turnover from 25 May, 2016 to 24 May, 2017 14,00,000
Add: 10% expected increase 1,40,000
15,40,000
Gross Profi t on ` 15,40,000 @ 25% 3,85,000
Standing charges not Insured (3,00,000 - 1,75,000) 1,25,000
Gross profit + Uninsured standing charges 5,10,000
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Page 5
Insurance Claims
Q-1 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 36,00,000
Standing charges in last financial year 7,20,000
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 ` 50,000.
Ans.(a) Calculation of Gross Profit
Gross Profit =
Net Profit + Standing Charges
×100
Turn over
= (3,60,000 + 7,20,000)/ 36,00,000= 30%
(b) Calculation of policy amount to cover loss of profit
`
Turnover in the last financial year 36,00,000
Add: 25% increase in turnover 9,00,000
45,00,000
Gross profit on increased turnover 13,50,000
Add: Additional standing charges 50,000
Policy Amount 14,00,000
Therefore, the trader should go in for a loss of profit policy of ` 14,00,000.
Q-2 A fire occurred in the premises of M/s Kirti & Co. on 15
th
December, 2018. The working remained
disturbed upto 15
th
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 form the quarterly sales tax return filed / GST return filed :
Sales 2015-16 2016-17(`) 2017-18 (`) 2018-19(`)
From 1
st
April to 30
th
June 3,80,000 3,15,000 4,11,900 3,24,000
From 1
st
July to 30
th
September 1,86,000 3,92,000 3,86,000 4,42,000
I From 1
st
October to 31
st
December 3,86,000 4,00,000 4,62,000 3,50,000
From 1
st
January to 31
st
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
31
st
March, 2018.
You are required to calculate the loss of profit claim amount.
Ans. Gross profit ratio
`
Net profit for the year 2017-18 2,50,000
Add: Insured standing charges 77,980
3,27,980
Ratio of Gross profit = = 20%
16,39,900
3,27,980
Calculation of Short sales
Indemnity period: 16.12.2018 to 15.3.19
Standard sales to be calculated on basis of corresponding period of year 2017-18
`
Sales for period 16.12.2017 to 31.12.17 68,000
Sales for period 1.1.2018 to 15.3.2018 (Note 1) 2,60,000
Sales for period 16.12.2017 to 15.3.2018 3,28,000
Add: upward trend in sales (15%) (Note 2) 49,200
Standard Sales (adjusted) 3,77,200
Actual sales of disorganized period
Calculation of sales from 16.12.18 to 15.3.19
Sales for period 16.12.18 to 31.12.18 Nil
Sales for 1.1.19 to 15.3.19 (` 2,96,000 – ` 40,000) 2,56,000
Actual Sales 2,56,000
Short Sales (` 3,77,200 - ` 2,56,000) 1,21,200
Loss of gross profit
Short sales x gross profit ratio = 1,21,200 x 20% 24,240
Application of average clause
policy value
Net claim = Gross claim ×
gross profit on annual turnover
= 24,240 x
? ?
2,50,000
3,26,240 W.N.3
Amount of loss of profit claim = ` 18,575
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Working Notes:
1. Sales for period 1.1.18 to 15.3.18 `
Sales for 1 Jan. to 31 March (2017-18) (given) 3,80,000
Less: Sales for 16.3.18 to 31.3.18 (given) (1,20,000)
Sales for period 1.1.18 to 15.3.18 2,60,000
2. Calculation of upward trend in sales
Total sales in year 2015-16 = ` 12,40,000
Increase in sales in year 2016-17 as compared to 2015-16 = ` 1,86,000
% increase =
1,86,000 (14,26,000 - 12,40,000)
= 15%
12,40,000
Increase in sales in year 2017-18 as compared to year 2016-17
% increase =
2,13,900 (16,39,900 - 14,26,000)
= 15%
14,26,000
Thus annual percentage increase trend is of 15%
3. Gross profit on annual turnover `
Sales from 16.12.17 to 30.12.17 (adjusted) (68,000 x 1.15) 78,200
1.1.18 to 31.3.18 (adjusted) (3,80,000 x1.15) 4,37,000
1.4.18 to 30.6.18 3,24,000
1.7.18 to 30.9.18 4,42,000
1.10.18 to 15.12.18 (3,50,000 – Nil) 3,50,000
Sales for 12 months just before date of fire* 16,31,200
Gross profit on adjusted annual sales @ 20% 3,26,240
NOTE*: Alternatively, the annual adjusted turnover may be computed as ` 17,98,000 (` 15,64,000 X
1.15) considering the annual % increase trend for the entire period of last 12 months preceding to the
date of fire. In that case, the gross profit on adjusted annual sales @ 20% will be computed as ` 3,59,720
and net claim will be computed accordingly.
Q-3 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.
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Ans. Computation of the amount of claim for the loss of profit
1. Reduction in turnover `
Turnover from 25th May, 2016 to 30th September, 2016 6,00,000
Add: 10% expected increase 60,000
6,60,000
Less: Actual Turnover from 25th May, 2017 to 30th September, 2017 (1,75,000)
Short Sales 4,85,000
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) Additional Exp. x G.P . on Adjusted Annual Turnover
G.P . as above + Uninsured Standing Charges
30,000x [3,85,000/(3,85,000+1,25,000)] = ` 22,647
(iii) G.P . on sales generated by additional expenses
175000 x 25% = ` 43,750
It is given that entire sales during the interrupted period was due to additional expenses.
Therefore, lower of above is (i, ii & iii) ` 22,647
1,43,897
Less: Saving in Insured Standing Charges (5,000)
Amount of claim before application of Average Clause 1,38,897
3. Application of Average Clause:
Amount of Policy x Amount of Claim
G.P. on Annual Turnover
(3,50,000/ 3,85,000) x 1,38,897= ` 1,26,270
Amount of claim under the policy = ` 1,26,270
Working Notes:
1. Rate of Gross Profit for last Financial Year: `
Net Profi t for last financial year 2,00,000
Add: Insured Standing Charges 1,75,000
Gross Profit 3,75,000
Turnover for the last financial year 15,00,000
Rate of Gross Profit =
3,75,000
×100
15,00,000
= 25%
2. Annual Turnover (adjusted):
Turnover from 25 May, 2016 to 24 May, 2017 14,00,000
Add: 10% expected increase 1,40,000
15,40,000
Gross Profi t on ` 15,40,000 @ 25% 3,85,000
Standing charges not Insured (3,00,000 - 1,75,000) 1,25,000
Gross profit + Uninsured standing charges 5,10,000
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Q-4 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 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 upto 30th September, 2017 did not include ` 1,00,000 for which purchase invoices had not
been received from suppliers, though 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.
Ans. Computation of claim for loss of stock
`
Stock on the date of fire (i.e. on 1.10.2017) 3,75,000
Less : Stock salvage 50,000
Stock destroyed by fire (Loss of stock) 3,25,000
Insurance Claim = ` 3,25,000
(Average clause is not applicable as insurance policyt amount (` 5,00,000) is more than that value of closing
stock ie. ` 3,75,000)
Memorandum Trading A/c
(1.4.17 to 30.9.17)
Particular ` Particular `
To Opening stock 3,50,000 By Sales 25,68,000
To Purchases 19,75,000 By Goods with customers* 99,000
(` 18,75,000 + ` 1,00,000) (for approval) (W.N.1)
To Carriage inward 35,000 By Closing stock (bal.fig) 3,75,000
To Wages 40,000
To Gross profit
(` 25,68,000 x25%) 6,42,000
30,42,000 30,42,000
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FAQs on Important Questions & Answers: Insurance Claim - Accounting for CA Intermediate (Old Scheme)
| 1. What is an insurance claim? |  |
Ans. An insurance claim is a formal request made by an insured individual or policyholder to an insurance company for compensation or coverage for a covered loss or event. It is the process through which policyholders receive financial reimbursement or assistance for damages or losses that are covered under their insurance policy.
| 2. How can I file an insurance claim? | |
Ans. To file an insurance claim, you need to follow these steps:
1. Notify your insurance company: Contact your insurance company as soon as possible to report the claim. Provide them with all the necessary details and information about the incident or event that caused the loss.
2. Fill out the claim form: Most insurance companies will require you to fill out a claim form. This form will ask for details regarding the loss, including the date, time, location, and a description of what happened.
3. Provide supporting documentation: Gather any evidence or documentation that can support your claim, such as photographs, police reports, medical records, or receipts.
4. Cooperate with the insurance company: Be prepared to cooperate fully with the insurance company's investigation. They may request additional information or documentation to process your claim.
5. Follow up on the claim: Stay in touch with your insurance company to track the progress of your claim and provide any additional information they may require.
| 3. What factors can affect the outcome of an insurance claim? | |
Ans. Several factors can influence the outcome of an insurance claim, including:
1. Policy coverage: The terms and conditions of your insurance policy will determine whether the loss or event is covered or excluded. Review your policy to understand the extent of coverage.
2. Policyholder responsibilities: Your responsibilities as a policyholder, such as timely reporting of the claim, providing accurate information, and cooperating with the insurance company's investigation, can impact the outcome.
3. Documentation and evidence: The quality and availability of supporting documentation, such as photographs, receipts, or expert opinions, can significantly impact the outcome of your claim.
4. Insurance company's investigation: The thoroughness and fairness of the insurance company's investigation into the claim can affect the outcome. They may assess the credibility of the claim and evaluate the extent of the loss.
5. Legal regulations: The insurance laws and regulations in your jurisdiction can also impact the outcome of your claim. Familiarize yourself with the relevant laws to understand your rights and obligations.
| 4. What should I do if my insurance claim is denied? | |
Ans. If your insurance claim is denied, you can take the following steps:
1. Review the denial letter: Carefully read the denial letter sent by the insurance company. It should explain the reasons for the denial and any recourse options available to you.
2. Understand the policy terms: Review your insurance policy to ensure that the denial aligns with the terms and conditions of your coverage. Seek professional advice if necessary.
3. Contact the insurance company: If you believe there has been a mistake or misunderstanding, contact the insurance company to discuss the denial and provide any additional information or documentation that may support your claim.
4. Seek legal advice: If you are unable to resolve the issue with the insurance company, consider consulting with a lawyer who specializes in insurance claims. They can provide guidance on your legal rights and potential remedies.
5. File a complaint: If you believe the insurance company has acted unfairly or in violation of regulations, you may file a complaint with the appropriate regulatory authority or ombudsman.
| 5. How long does it take to process an insurance claim? | |
Ans. The time it takes to process an insurance claim can vary depending on several factors, including the complexity of the claim, the responsiveness of the policyholder, and the efficiency of the insurance company's processes. Simple claims with straightforward documentation can often be resolved within a few weeks. However, more complex claims that require extensive investigation or evaluation may take several months to process. It is important to stay in touch with your insurance company and follow up on the progress of your claim to ensure its timely resolution.
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