J. K. SHAH CLASSES I. P. C. C.

- ACCOUNTANCY

CHAPTER-13 FIRE INSURANCE CLAIMS

LOSS OF STOCK

Q. 1. Northern Ltd. have taken out a fire policy of ` 64,000 covering its stock-in-trade. A fire
occurred on 30th June 2011 and stock was destroyed with the exception of value of
`16,544. Following particulars are avail able from the books of accounts of the company.
`
Stock on 31st March 2011 24,000
Purchases to the date of fire 1,04,000
Sales to the date of fire 72,000
Commission paid to purchase manager on purchases 20%
Average gross profit on cost 40%
The policy was subject to average clause. You are required to arrive at the
(i) total of stock &
(ii) the amount of claim to be made against the insurance company.

Q. 2. A fire accrued in the business premises of M/s. Poonawalla on 15th October 2011.
From the following particular ascertain the loss of stock and claim insurance.
`
Stock as on 1.4.2010 30,600
Purchases from 1.4.2010 to 31.3.2011 1,22,000
Sales from 1.4.2010 to 31.3.2011 1,80,000
Stock as on 31.3.2011 27,000
Purchases from 1.4.2011 to 14.10.2010 1,47,000
Sales from 1.4.2011 to 14.10.2011 1,50,000
The stock were always valued at 90 percent of cost. The stock saved from fire was worth
` 18,000. The amount of policy was ` 63,000. There was average clause in policy.

Q. 3. The premises of M/s New and Company were gutted by fire on 31st Aug. 2011 and
some stock was found badly damaged. The accounts of the firm are closed on 31st
March each year. On 31st March 2011 stock was valued at cost at ` 26,544 against
` 19,288 as on 31st March 2010. Purchases and sales were as follows :
Full year 2010-11 Period upto 31.8.2011
Purchase 90,516 69,657
Sales 1,04,000 98,340
In additional to above you collect the following information :
(1) Some time in May 2011 goods costing ` 10,000 were distributed as a part advertisement
campaign in support thereof no entry appears to have been passed in the books.
(2) During 2011-12 cash sales of ` 1,190 were misappropriated and the these
were not recorded in the books. Ascertain the estimated value of stock at the
date of fire assuming that the rate of gross profit was constant.

: 56 : FIRE INSURANCE CLAIMS

J. K. SHAH CLASSES I. P. C. C. - ACCOUNTANCY
Q. 4. From the following particulars you are required to prepare a statement of claim for X,
Y, whose business premises were partly destroyed by fire on 30th September, 2011.
He prepares account on 31st March each year.
`
Stock on 1st April, 2011 34,017
Purchase from 1st April, 2011 to 30th September 2011 80,000
Wages from 1st April, 2011 to 30th September 2011 30,500
Sales from 1st April, 2011 to 30th September 2011 1,50,000
Average percentage of gross profit to cost is 16 2 / 3%. Stock to the value of ` 10,000
was salvages policy was ` 8,000. Claim was subject to average clause.
Following additional information is available
(i) Purchases included purchase of plant of ` 8,000.
(ii) Plant was installed in August and firm's own men had spent time amounting to
` 500 which was included in wages.
(iii) Stock in the beginning was calculated at 15% less than cost. You are required
to calculate the claim for the loss of stock.

Q. 5. On 1st July 2011 a fire took place in the godown of Ram Kumar which destroyed all Stocks.
Calculate the amount of insurance claim for the stock from the following details :
`
Sales in 2009-2010 2,00,000
Gross profit in 2009-2010 60,000
Sales in 2010-2011 3,00,000
Gross profit 2010-2011 60,000
Stock as on 1.1.2011 2,70,000
Purchases from 1.4.2011 to 30.6.2011 4,00,000
Sales from 1.4.2011 to 30.6.2011 7,20,000
The following are also to be taken in to consideration.
(1) Stock as on 31st March 2011 had been undervalued by 10%.
(2) Stock raking conducted in March 2011 had revealed that stocks costing ` 80,000
were lying in damaged condition. 50% of these stocks had been sold in June 2011
at 50% of cost and the balance were expected to be sold at 40% of cost.
(3) Amount of policy ` 1,50,000.

Q. 6. 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 for ` 9,000. Barring the transaction relating to this item, the gross
profit earned during the year was 20% on sales.
: 57 : FIRE INSURANCE CLAIMS
J. K. SHAH CLASSES I. P. C. C. - ACCOUNTANCY

LOSS OF PROFIT

Q. 7. Financial year on 31st March, 2011 with turnover of ` 2,00,000. Fire takes place on
September 1, 2011 Period interruption being 5 months (from 1st September 2011 to
1st Feb. 2012, Period of indemnity according to policy - 6 month.
Net profit for 31st March, 2011 ` 12,000 and insured standing charges ` 24,000.
Sum insured ` 42,240. Uninsured standing charges ` 2,000; Standard turnover i.e.
for corresponding months of interruption (from 1st September to 1st Feb.) in the year
preceeding the fire ` 75,000.
Turnover in the period of interruption ` 22,500. Annual turnover (for 1st Sept. 2010 to
31st August 2011 ` 2,20,000).
Additional expenses ` 4,000 with a saving of insured standing charges ` 1,500. But
for this additional expenditure, the turnover after the fire would have been only ` 12,500.
The expenses on putting the fire out were ` 500. During 2011 - 2012 increase in
turnover (both standard and annual) is expected to be 20% and increase in G.P. rate
is expected by 2%. Calculated amount of claim for loss of profit.

Q. 8. Y The premises of X Y Limited were partially destroyed by fire on 1st March 2011 and as
a result, the business was partially disorganised up to 31st August 2011, The company is
insured under a Loss of Profit Policy for ` 1,65,000 having an indemnity period of 6 months.
From the following information, prepare a claim under the policy : `
1. Actual turnover during the period of dislocation (1-3-2011 to 31-3-2011) 80,000
2. Turnover for the corresponding period (dislocation) in the last year
immediately before the fire (1-3-2010 to 31-8-2010) 2,40,000
3. Turnover for the 12 months immediately preceeding the fire
(1-3-2010 to 29-2-2011) 6,00,000
4. Net profit for the last financial year 90,000
5. Insured standing charges for the last financial year 60,000
6. Uninsured standing charges 5,000
7. 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 is insured standing
charge as a result of the fire.

: 58 : FIRE INSURANCE CLAIMS

J. K. SHAH CLASSES I. P. C. C. - ACCOUNTANCY
Q. 9. From the following particulars, you are required to calculate the amount of claim for
Buildwell Ltd., whose business premises was partly des troyed by fire:
Sum insured (from 31st December 2011) ` 4,00,000
Period of indemnity 12 months
Date of damage 1stJanuary, 2012
Date on which disruption of business ceased 31st October, 2012
The subject matter of the policy was gross prof it but only net profit and insured stand-
ing 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
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:
Pre-damaged Adjustmentto Adjusted standard
Period Figures be added turnover
` ` `
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 annual
turnover for January was nil and for the period February to October 2012 ` 8,00,000.

: 59 : FIRE INSURANCE CLAIMS

J. K. SHAH CLASSES I. P. C. C. - ACCOUNTANCY

Q. 10. 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
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 were gutted with nil salvage value. The net quarter
sales 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
GP by 5% due to increased cost.
Ascertain the claim for stock and loss of profit.

: 60 : FIRE INSURANCE CLAIMS