nsurance Claims: Problem and Solution # 1.

A fire occurred on 15th December, 2011 in the premises of D Co. Ltd.

From the following figures, calculate the amount of claim to be lodged
with the insurance company for loss of stock:

Insurance Claims: Problem and Solution # 2.

The premises of X Ltd. caught fire on 22nd January, 2012 and the stock was
damaged. The firm made up accounts to 31 March each year and on 31st
March, 2010 the stock at cost was Rs 13,27,200 as against Rs 9,62,200 on
31st March. 2010.
Purchases from 1st April, 2011 to the date of fire were Rs 34,82,700 as
against Rs 45,25,000 for the full year 2010-11 and the corresponding sales
figure were Rs 49,17,000 and Rs 52,00,000 respectively.
You are given the following further information:
(i) In July, 2011, goods costing Rs 1,00,000 were given away for advertising
purposes, no entries being made in the books.
(ii) During 2011-2012, a clerk misappropriated unrecorded cash sales. It is
estimated that the defalcation averaged Rs 2,000 per week from 1st April,
2011 until the clerk was dismissed on 18th August, 2011.
(iii) The rate of gross profit is constant. From the above information, make an
estimate of the stock in hand on the date of fire.

Insurance Claims: Problem and Solution # 3.

Fire occurred in the premises of X Ltd. on 10th January, 2012. All stocks were
destroyed except to the extent of Rs 62,000.
From the following figures, ascertain the loss suffered by the company:

It was the practice of the firm to value stock at cost less 10%. Early in April,
2011, prices were raised by 5%.
Solution:

Since the rate of gross profit is not given, it is necessary to prepare Trading
Account for 2010-11. The stocks being valued at 10% below cost, the value of
stocks must be increased by 1/9 to bring them up to their full cost which is the
normal practice.

Insurance Claims: Problem and Solution # 4.

On 30th June, 2011 accidental fire destroyed a major part of the stocks in the
godown of Jay Associates. Stocks costing Rs 30,000 could be salvaged but
not their stores ledgers. A fire insurance policy was in force under which the
sum insured was Rs 3,50,000.
From available records, the following information was retrieved:

(i) Total of sales invoices during the period April-June amounted to Rs

30,20,000. An analysis showed that goods of the value of Rs 3,00,000 had
been returned by the customers before the date of the fire.
(ii) Opening stock on 1.4.2011 was Rs 2,20,000 including stocks of the value
of Rs 20,000 being lower of cost and net value subsequently realised.
(iii) Purchases between 1.4.2011 and 30.6.2011 were Rs 21,00,000.
(iv) Normal gross profit rate was 33 1/3% on sales.
(v) A sum of Rs 30,000 was incurred by way of fire-fighting expenses on the
day of the fire.
Prepare a statement showing the insurance claim recoverable.

Insurance Claims: Problem and Solution # 5.

On 15th September, 2011 the premises of Fire and Stone were destroyed
by fire but sufficient records were saved from which the following
particulars were ascertained:

In valuing stock for Balance Sheet at 31st March, 2011 Rs 2,300 had been
written off certain stock which was of a poor selling line, having cost Rs 6,900.
A portion of these goods was sold in June, 2011 at a loss of Rs 250 on the

original cost of Rs 3,450. The remainder of this stock was now estimated to be
worth the original cost. Subject to the above exception, gross profit had
remained at a uniform rate throughout.
The stock salvaged was Rs 5,800.
Show the amount of the claim.

Insurance Claims: Problem and Solution # 6.

On 1st July, 2011, the godown of Hindustan Limited was destroyed by
fire. From the books of account, the following particulars are gathered:

Goods of which original cost was Rs 360 thousand had been valued at Rs 150
thousand on 31st March, 2011. These goods were sold in June, 2009 for Rs
270 thousand. Except this transaction, the rate of gross profit has remained
constant.
On 30th June, 2011 goods worth Rs 1,500 thousand had been received by the
godown keeper; but had not been entered in the purchases account.
Calculate the value of goods destroyed by fire.

Insurance Claims: Problem and Solution # 7.

A fire occurred in the premises of Atul on 25th August, 2011 when a
large part of the stock was destroyed. Salvage was Rs 1,50,000. Atul
gives you the following information for the period from 1st April, 2011 to
25th August, 2011:
(a) Purchases, Rs 8,05,000.
(b) Sales, Rs 9,00,000.
(c) Goods costing Rs 5,000 were taken away by Atul for his personal use.
(d) Cost price of stock on 1st April, 2011 was Rs 4,00,000.
Over the past few years, Atul has been selling goods at a consistent gross
profit margin of 33 1/3%.
The insurance policy was for Rs 5,00,000. It included an average clause also.

Atul asks you to prepare a statement of claim to be made on the insurance

company.

Insurance Claims: Problem and Solution # 8.

On 31st August, 2011 the premises and stock of a firm were totally
destroyed by fire; the books of accounts, however, were saved. In order
to make a claim on their fire policy, they ask you to advise on the basis
of the following information. The stock in hand has always been valued
at 5% below cost:

Prepare a statement for submission to the insurance company in support of

your claim for loss of stock. The company closes its books of account every
year on 31st March.

Insurance Claims: Problem and Solution # 9.

The premises of XY Limited were partially destroyed by fire on 1st March,

2011 and as a result, the business was practically disorganised upto 31st
August, 2011. The company is insured under a loss of profits policy for Rs 165
lakh having an indemnity period of 6 months.
From the following information, prepare a statement of claim under the
policy:

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 Rs 9.3 lakh
immediately after the fire and but for this expenditure, the turnover during the
period of dislocation would have been only Rs 55 lakh. There was also a
saving during the indemnity period, of Rs 2.7 lakh in insured standing charge
as a result of the fire.

Gross profit on annual adjusted turnover = 30% of Rs 660 lakh = Rs 198 lakh
Policy should have been taken for Rs 198 lakh but it has been taken for Rs
165 lakh only. Hence, average clause will be applied for determining the
amount of the claim.
Note:
It is assumed that trend adjustment is required on total amount of annual
turnover. However, part of the annual turnover represents trend adjusted
figure. Alternatively, the student may ignore trend and take simply annual
turnover. The claim would be Rs 55 lakh. So the insurance company would
insist on trend adjustment on annual turnover.

Hence, amount of the claim = Rs 50 lakh

Insurance Claims: Problem and Solution # 10.

X Ltd. has insured itself under a loss of profit policy for Rs 3,63,000. The
indemnity period under the policy is six months. On 1st September, 2011 a fire
occurred in the factory of X Ltd. and the normal business was affected upto
1st March, 2012.
The following information is compiled for the year ended on 31st March,
2011:

Following further details of turnover are furnished:

(a) Turnover during the period of 12 months ending on the date of fire was Rs
22,00,000;
(b) Turnover during the period of interruption was Rs 2,25,000;

(c) Actual turnover during the period from 1.9.2008 to 1.3.2009 during the
preceding year corresponding to the indemnity period was Rs 7,50,000;
X Ltd. spent an amount of Rs 40,000 as additional cost of working during the
indemnity period.
On account of this additional expenditure:
(a) There was a saving of Rs 15,000 in insured standing charges during the
period of indemnity;
(b) Reduced turnover avoided was Rs 1,00,000i.e., but for this expenditure,
the turnover after the date of fire would have been only Rs 1,25,000.
A special clause in the policy stipulates that owing to the reasons
acceptable to the insurer under the special circumstances, the following
increases are to be made:
(a) Increase of turnoverstandard and acutalby 10%
(b) Increase in rate of gross profit by 2% from previous years level.
X Ltd. asks you to compute the claim for loss of profit. All calculations should
be made to the nearest rupee.

Insurance Claims: Problem and Solution # 11.

On 1st August, 2011 a fire occurred in the premises of ABC Ltd. The Company
has a loss of profit for Rs 12,00,000. Sales from 1st August, 2010 to 31st July,
2011 were Rs 1 crore, the sales from 1st August, 2010 to 30th November, 2010
being Rs 30,00,000. During the indemnity period, which lasted four months,
sales amounted to Rs 4,00,000 only. The Company closes its books of
account every year on 31st March.
The profit and loss account for the year ended 31st March, 2011 is given
below:

As compared with the sales for the first four months of the accounting year
2010-2011, the sales for the first four months of the accounting year 20112012 were found to be up by 20%.
Calculate the amount of claim for loss of profit assuming that the policy has
average clause.

Insurance Claims: Problem and Solution # 12.

Cee Ltd., which operates a wholesale warehouse, had a fire on premises on
30th April, 2011, which destroyed most of the building, although stock to the
value of Rs 3,960 was salvaged. The company has an insurance policy (with
suitable average clauses) covering stock, for Rs 6,00,000, building for Rs
8,00,000, and loss of profits including standing charges for Rs 2,50,000 with a
six month period of indemnity.

The companys last Profit & Loss Account, for the year ended 31st
March 2011, showed the following position:

The companys records show that the sales for April, 2011 had been the same
as for the corresponding month in the previous year at Rs 1,00,000, payments
made to trade creditors in April were Rs 1,06,680 and at the end of that month
the balances owing to trade creditors had increased by Rs 3,320.
The companys business was disrupted until the end of July, during which
period turnover fell by Rs 1,80,000 compared with the same period in the
previous year. It was agreed that three-quarters of the value of the building
had been lost and that at the time of the fire, it had been worth Rs 10,00,000.
Ascertain the amount of various claims to be lodged with insurers.

Insurance Claims: Problem and Solution # 13.

Wye Ltd. had taken out a loss of profits policy for Rs 3,00,000 being Rs
1,30,000 for net profit and Rs 1,70,000 for fixed expenses. Expenses to the
extent of Rs 30,000 were not insured.
During the accounting year which ended 31st March, 2011, the company
earned a profit of Rs 90,000 after charging Rs 2,00,000, standing charges on
a sale of Rs 32,50,000. On 1st September, 2011 there was a fire as a result of
which sales suffered a great deal for a period of six months.
The details were as under:

The indemnity period according to the policy was 4 months. Rs 2,000 were
spent on putting the fire out and additional expenses as a consequence of fire

were Rs 16,028 but a saving of Rs 3,000 was affected. Towards the end of
March, 2011 a machine was installed which would have resulted in a net
saving equal to 2% of sales.
Ascertain the claim for loss of profits.

Insurance Claims: Problem and Solution # 14.

Stores Ltd. which runs a boutique makes up its accounts annually to
31st March. For the year ended March 31, 2010 the Profit and Loss
Account was summarised as follows:

On December 1, 2010 a fire occurred as a result of which no trading was

possible till April 1, 2011. On that date half the shop was reopened for
business; the other half reopened on 1st June, 2011. The consequential Loss
Policy covers gross profit and workroom wages, and accountancy charges at
Rs 50,000 or 2% of the amount of the claim (before such charges) whichever
is greater.
The insurers agreed that:
(i) Turnover increases by 15% p.a.
(ii) Workroom wages increase by 10% p.a.
(iii) The period of three months from 1st December to end of February
accounts for one half of the annual turnover.
(iv) Fixed charges and wages occur evenly throughout the year.
(v) Discounts received equal 1% of turnover.
You are required to compute the consequential loss claim.

Insurance Claims: Problem and Solution # 15.

Sony Ltd.s Trading and Profit and Loss Account for the year ended 31st
March 2011 were as follows:

The company had taken out a fire policy for Rs 3,00,000 and a loss of profits
policy for Rs 1,00,000 having an indemnity period of 6 months. A fire occurred
on 1.7.2011 at the premises and the entire stock was gutted with nil salvage
value. The net quarter sales from 1.7.2011 to 30.9.2011 were severely
affected.

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