Chapter 4 — Insurance Claim Insurance Cover [ — ’ ¥ Loss of Stock Loss of Profit LOSS OF STOCK We Took Insurance cover for stock to prevent ourselves from Abnormal Situations: As on the date of fire if the records are also got destroyed the we need to find out the amount of stock as on the date of fire to serve as an evident to the insurance company: Trading A/c (From beginning of the year till date of fire) Particulars Amount | Particulars Amount To opening stock By sales To purchases By closing Stock (b/6) To direct expenses To Gross Profit Total Total Amount of Claim = Amount of Policy / Stock Loss, whichever is lower If salvage value is given in question, then concept of average clause applicable Note: Average clause is applicable in case of under insurance only: Amount of claim = Policy amount * Loss of stock Stock on date of fire Note: Amount of policy is not given then assume it to be 100% {= }VARIOUS TYPES OF QUESTIONS & G-P- Ratio is not given in the question, but data of the previous year is given then prepare trading account of previous year to find out GP: Ratio for current year: & GP. Ratio is not given in the question but data of previous several years is given then prepare trading account of all the years and check the trend of the G-P- Ratio: If no trend is present then use average of the G:P- Ratios for current year- & Adjustments May be given in the question % Goods send but not invoiced (Goods bhej diye hai but bill nahi banaye hai) - Treat it as sales % Goods Received but not invoiced (Goods mil gaye hai but bill nahi aaya hai) - Treat_it as purchase + Goods Invoiced but not send (Bills ban gya hai but goods bheje nahi hai) - Not consider as sales *% Goods invoiced but not received (Bill aa-gya hai but goods nahi aaye hai) - Not consider as purchases* Other basic Adjustments Particulars Treatment Goods sold on approval basis (approved) | Treat it as sales Goods sold on approval basis (Not yet Deduct it from sales and show approved) in the cr- Side on trading A/c at Cost Price Cash Sales misappropriation Add in sales value Drawings, Free samples, Charity, ete Deduct from Purchases Overvaluation of stock Stock = Given amount of stock Undervaluation of stock % OF current level Capital expenditure included in Direct Reduce it Direct expenses expensesABNORMAL ITEMS GIVEN IN THE QUESTION Trading A/e (previous year) [To find G-P- Ratio] Particulars | Amount | Particulars [ Amount To opening stock By sales To purchases By Closing stock (before abnormal items) To direct expenses To gross Profit Total Total Trading A/e (Current year) Particulars | Normal | Abnormal | Total| Particulars Normal | Abnormal) Total To opening By sales stock To By Loss on purchases sale of abnormal items To direct By Expenses revaluation loss (if any) To gross By Closing profit stock LOSS OF PROFIT POLICY Due the fire in the premises the business got effected and for that period the profit got effected for that period, so business used to take the loss of profit policy which covers + Loss of profit © Standing charges * Additional ExpensesPrevious Year Sales in Corresponding Period “4 we 310 33 Turnover in previous Year Current Year 6 v4 ve 31710 31/3 Calculation of Claim under Loss of profit policy | Step 1: Calculation of G-P- Ratio G-P- Ratio = Net profit + Insured standing charges Net sales Insured standing charges = Total standing charges = Uninsured standing charges Note: If nothing is mentioned in the question assume total standing charges as insured standing charges Note: Adjust the G-P- Ration with the trend (if any)- Step 2: Short sales Sales in corresponding period in previous year (+/+) Trend in sales (if any) Sales Expected (-) Actual sales Short sales { * }Step 3: Loss of profit Short sales * G-P- Ratio Step 4: Additional expenses claim Lower of 7: Actual Additional Expenses 2: Actual Additional Expenses * Net Profit + Insured standing charges Net Profit + All standing charges 3: Sales due to Additional Expenses (if not given take the total sales of disturbed period) * G-P- Ratio Adjusted Annual Turnover = 12 months Sales immediately preceding date of fire (+/-) Trend [if any] only for the months of previous year Note: If AAT is not given then take the sales of previous year Step 5: Calculation of claim Total Loss = Loss of profit + Additional Expenses ~ Savings In insured standing charges Claim Amount = Total Loss * Insured Amount Adjusted Annual Turnover * G-P- Ratio Average clause is only applicable in case when Insurable amount > Insured amount: Insurable amount = Adjusted Annual Turnover * G-P- Ratio CALCULATION OF POLICY AMOUNT TO BE TAKEN GP» Ratio = Net Profit + All Standing Charges Net Sales Gross Profit = Expected turnover in C-Y: * G-P- Ratio Amount of policy to be taken = Gross profit + Expected Additional expenses Note: If sales are not given prepare trading A/c to find the same: Gross Profit = Sales - Variable cost (or) Net Profit + Standing charges - Indirect: Income [if any] {»}