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PROF. BHAMBWANI’S RELIABLE CLASSES I.P.C.C. Accounts – (Gr. I) Insurance Claim of Loss of Profit Sr No 1 2 3 4 5 6 7 8 9 10 11
Lecture No 1 2 3 4 5 6 7 8 9 10 11
Content of lecture Theory Theory Problem Problem Problem Problem Problem Problem Problem Theory Problem
Duration In Minutes 45 31
LEC 1: (45 Minutes) Theory LEC 2: (31 Minutes) Theory LEC 3: (23 Minutes) A fire occurred in the premises of a businessman on 30th June 1994. From the following data, compute a consequential loss claim; Financial year ends on 31st December. Indemnity period 6 months Turnover Rs. 2,00,000 Period of interruption – 1st July to 31st October, Date of fire – 30 June Net profit – Rs. 18,000 Standing charges: Rs. 42,000 out of which Rs. 10,000 have not been insured. Sum assured – Rs. 50,000 Standard turnover – Rs. 65,000 Turnover in the period of interruption – Rs. 25,000 out of which Rs. 6,000 was from a place rented at Rs. 600 a month. Annual turnover – Rs. 2,40,000. Savings in standing charges – Rs. 4,725 p.a. It was agreed between the insurer and the insured that the business trends would lead to an increase of 10% to in the turnover. (ICWA June 1995) LEC 4: (28 Minutes) The premises of a company were partly destroyed by fire which took place on 1 st March, 1992 and as a result if which the business was disorganized from 1 st March to 31st July 1992. accounts are closed on 31st Dec every year. The company is insured under a Loss of profits policy for Rs. 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:
1
Rs. Turnover for the year1991
40,00,000
Net profits for the year 1991
2,40,000
Insured standing charges
4,80,000
Uninsured standing charges
80,000
Turnover during the period of dislocation i.e. from 1.3.92 to 31.7.1992 8,00,000 Standard turnover from 1.3.91 to 31.7.91
20,00,000
Annual turn over from 1.3.91 to 29.2.1992
44,00,000
Increased cost of working
1,50,000
Savings in insured standing charges
30,000
Reduction in turnover avoided due to increase in working cost
4,00,000
Owing to reasons acceptable to the insurer, “the special circumstances clause” stipulates for:a) b)
Increase of turnover (Standard and annual) by 10% and Increase of rate of gross profit by 2%. (C.A.INTER, MAY 1983 )
LEC 5: (25 Minutes) A fire occurred on 1st July 1990, in the premises of Arolite Ltd and business was practically disorganized upto 30th Nov. 1990. From the books of account, the following information was Extracted: 1. Actual turnover from 1st July 1990 to 30th Nov 1990 60,000 2. Turnover from 1.7.89 to 30.11.1989 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 1990 5,50,000 7. Total Standing Charges for the year 72,000 The company incurred additional expenses amounting to Rs. 9,000 which reduced the loss in turnover. There was also a saving during the indemnity period of Rs. 2,486. The company holds a “Loss of Profit” Policy for Rs. 1,65,000 having an indemnity period for 6 months. There has 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”. (C.A.INTER NS, NOV 1981) LEC 6: (26 Minutes) A loss of profit policy was taken for Rs. 80,000. Fire occurred on 15 th March 1989. indemnity period was for 3 months. Net profit for 1998 year ending on 31st Dec was Rs 56,000 and standing charges (all insured) amounted to Rs 49,600. Determine insurance claims form the following: Sales(Rs.) 1986 1987 1988 1989 From 1st Jan. to 31st March 1,20,000 1,30,000 1,42,000 1,30,000
2
From 1st April to 30th June 80,000 90,000 From 1st July to 30th Sept. 1,00,000 1,10,000 From 1st Oct. to 31st Dec. 1,36,000 1,50,000 Sales from 16.3.1988 to 31.3.1988 were Sales from 16.3.1989 to 31.3.1989 were Sales from 16.6.1988 to 30.6.1988 were Sales from 16.6.1989 to 30.6.1989 were (C.A.INTER NOV. 90)
1,00,000 1,20,000 1,66,000
40,000 1,00,000 1,60,000 28,000 NIL 24,000 6,000
LEC 7: (1 hrs and 12 Minutes) WYE Ltd. Had taken out a loss of profit policy, for Rs. 3,00,000, being Rs. 1,30,000 profit and Rs. 1,70,000 for fixed expenses. Expenses to the extent of Rs. 30,000 were not insured. During 1984 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 June, 1985 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: 1984
1985
1984
1985
January
2,00,000
2,20,000
July
4,50,000
50,000
February
2,00,000
2,20,000
August
3,40,000
60,000
March
2,50,000
2,75,000
September
2,50,000
80,000
April
2,50,000
2,75,000
October
2,50,000
1,10,000
May
3,00,000
3,30,000
November
2,50,000
1,50,000
June
3,60,000
50,000
December
1,50,000
1,80,000
The indemnity period according to the policy was 4 months, Rs. 2,000 was 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 1984 a machine was installed which would have resulted in a net saving equal to 2% of sales. Ascertain the claim for loss of profits. LEC 7: (27 Minutes)(part -2) LEC 8: (27 Minutes) The following is the Profit and Loss Account of Zed Ltd. For 1988:Profit and Loss Account To Opening Stock
25,000
By sales
4,00,000
To Purchase
1,56,000
By Interest on Securities
7,000
To Wages (including
By Closing Stock
Rs.15,000 to skilled workers) To Manufacturing
35,000 87,000
3
Expenses
60,000
To Office Administration Expenses
37,000
To Advertising
4,000
To Selling Expenses(fixed)
23,000
To Commissions on sales
14,000
To Carriage
11,000
To Net Profit
25,000 4,42,200
4,42,000
Subsequently it was discovered that: i. Advertising materials purchased for Rs. 6,000 and used up in 1998 were included in purchase amount. ii. Plant was installed in December, 1998, installation expenses of Rs. 7,000 were debited to Wages Account. The Plant was expected to bring about net saving in costs equal to 3% of sales. company had taken out various types of policies (all with average clauses); the one for loss for Rs. 1,30,000. On 1st April, 1989 a fire occurred as result of which sales remained below normal for 4 months. Stock salvaged was valued at Rs. 7,500. The following other information supplied to you:Financial Data from 1/1/89 to 31/3/89: Sales : 1,50,000 Purchase : 60,000 Wages : 24,000 Manufacturing Exp.: 18,000 Relevant Sales figures were: Rs. January 1, 1988 to March 31, 1988 1,20,000 April 1, 1988 to July 31, 1988 1,80,000 April 1, 1989 to July 31,1989 30,000 iii.
Expenses on putting the fire out were Rs. 1,000. Ascertain the claims for loss of stock and Loss of Profits. LEC 9: (28 Minutes) 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 Rs. 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 Rs.31,250 (N- 10)
4
LEC 10: (22 Minutes) On account of a fire on 15 June, 2002 in the business house of a company, the working remained disturbed upto 15 Dec., 2002 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 Rs.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 last year. The company incurred an additional expenditure of Rs.12,000 to make sales possible and made a saving of Rs.2,000 in the insured standing charges. Ascertain the claim under the consequential loss policy keeping the following additional information in view: Rs. Actual sales from 15 June, 2002 to 15 Dec., 2002
70,000
Sales from 15 June, 2001 to 15 Dec., 2001
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: 16 June, 2001 to 15 June 2002
5,60,000
LEC 11: (24 Minutes) From the following details, calculate consequential loss claim: 1. Date of fire: 1st September following; 2. Indemnity period : 6 months; 3. Period of disruption: 1st September to 1st February; 4. Sum insured: Rs. 1,08,900; 5. Sales were Rs.6,00,000 for preceding financial year ended on 31 st March. 6. Net profit for preceding financial year Rs.36,000 plus insured standing charges Rs.72,000; 7. Rate of Gross profit 18%. 8. Uninsured standing charges Rs.6,000; 9. Turnover during the disruption period Rs.67,500; 10. Annual turnover for 12 months immediately preceding the date of fire Rs.6,60,000; 11. Standard turnover i.e. for corresponding months (1 st September to 1st February) in the year preceding the date of fire Rs.2,25,000; 12. Increase in the cost of Working capital Rs.12,000 with a saving of insured standing charges Rs.4,500 during the disruption period; 13. Reduced turnover avoided through increase in Working capital Rs.30,000; 14. Special clause stipulated; (a) Increase in rate of G.P. 20% (b) Increase in turnover (Standard and Annual) 10% (Nov 2008)\0
5
Lecture No 1 2 3 4 5 6 7 8 9 10 11
Content of lecture Theory Theory Problem Problem Problem Problem Problem Problem Problem Theory Problem
Duration In Minutes 45 31
LEC 1: (45 Minutes) Theory LEC 2: (31 Minutes) Theory LEC 3: (23 Minutes) A fire occurred in the premises of a businessman on 30th June 1994. From the following data, compute a consequential loss claim; Financial year ends on 31st December. Indemnity period 6 months Turnover Rs. 2,00,000 Period of interruption – 1st July to 31st October, Date of fire – 30 June Net profit – Rs. 18,000 Standing charges: Rs. 42,000 out of which Rs. 10,000 have not been insured. Sum assured – Rs. 50,000 Standard turnover – Rs. 65,000 Turnover in the period of interruption – Rs. 25,000 out of which Rs. 6,000 was from a place rented at Rs. 600 a month. Annual turnover – Rs. 2,40,000. Savings in standing charges – Rs. 4,725 p.a. It was agreed between the insurer and the insured that the business trends would lead to an increase of 10% to in the turnover. (ICWA June 1995) LEC 4: (28 Minutes) The premises of a company were partly destroyed by fire which took place on 1 st March, 1992 and as a result if which the business was disorganized from 1 st March to 31st July 1992. accounts are closed on 31st Dec every year. The company is insured under a Loss of profits policy for Rs. 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:
1
Rs. Turnover for the year1991
40,00,000
Net profits for the year 1991
2,40,000
Insured standing charges
4,80,000
Uninsured standing charges
80,000
Turnover during the period of dislocation i.e. from 1.3.92 to 31.7.1992 8,00,000 Standard turnover from 1.3.91 to 31.7.91
20,00,000
Annual turn over from 1.3.91 to 29.2.1992
44,00,000
Increased cost of working
1,50,000
Savings in insured standing charges
30,000
Reduction in turnover avoided due to increase in working cost
4,00,000
Owing to reasons acceptable to the insurer, “the special circumstances clause” stipulates for:a) b)
Increase of turnover (Standard and annual) by 10% and Increase of rate of gross profit by 2%. (C.A.INTER, MAY 1983 )
LEC 5: (25 Minutes) A fire occurred on 1st July 1990, in the premises of Arolite Ltd and business was practically disorganized upto 30th Nov. 1990. From the books of account, the following information was Extracted: 1. Actual turnover from 1st July 1990 to 30th Nov 1990 60,000 2. Turnover from 1.7.89 to 30.11.1989 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 1990 5,50,000 7. Total Standing Charges for the year 72,000 The company incurred additional expenses amounting to Rs. 9,000 which reduced the loss in turnover. There was also a saving during the indemnity period of Rs. 2,486. The company holds a “Loss of Profit” Policy for Rs. 1,65,000 having an indemnity period for 6 months. There has 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”. (C.A.INTER NS, NOV 1981) LEC 6: (26 Minutes) A loss of profit policy was taken for Rs. 80,000. Fire occurred on 15 th March 1989. indemnity period was for 3 months. Net profit for 1998 year ending on 31st Dec was Rs 56,000 and standing charges (all insured) amounted to Rs 49,600. Determine insurance claims form the following: Sales(Rs.) 1986 1987 1988 1989 From 1st Jan. to 31st March 1,20,000 1,30,000 1,42,000 1,30,000
2
From 1st April to 30th June 80,000 90,000 From 1st July to 30th Sept. 1,00,000 1,10,000 From 1st Oct. to 31st Dec. 1,36,000 1,50,000 Sales from 16.3.1988 to 31.3.1988 were Sales from 16.3.1989 to 31.3.1989 were Sales from 16.6.1988 to 30.6.1988 were Sales from 16.6.1989 to 30.6.1989 were (C.A.INTER NOV. 90)
1,00,000 1,20,000 1,66,000
40,000 1,00,000 1,60,000 28,000 NIL 24,000 6,000
LEC 7: (1 hrs and 12 Minutes) WYE Ltd. Had taken out a loss of profit policy, for Rs. 3,00,000, being Rs. 1,30,000 profit and Rs. 1,70,000 for fixed expenses. Expenses to the extent of Rs. 30,000 were not insured. During 1984 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 June, 1985 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: 1984
1985
1984
1985
January
2,00,000
2,20,000
July
4,50,000
50,000
February
2,00,000
2,20,000
August
3,40,000
60,000
March
2,50,000
2,75,000
September
2,50,000
80,000
April
2,50,000
2,75,000
October
2,50,000
1,10,000
May
3,00,000
3,30,000
November
2,50,000
1,50,000
June
3,60,000
50,000
December
1,50,000
1,80,000
The indemnity period according to the policy was 4 months, Rs. 2,000 was 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 1984 a machine was installed which would have resulted in a net saving equal to 2% of sales. Ascertain the claim for loss of profits. LEC 7: (27 Minutes)(part -2) LEC 8: (27 Minutes) The following is the Profit and Loss Account of Zed Ltd. For 1988:Profit and Loss Account To Opening Stock
25,000
By sales
4,00,000
To Purchase
1,56,000
By Interest on Securities
7,000
To Wages (including
By Closing Stock
Rs.15,000 to skilled workers) To Manufacturing
35,000 87,000
3
Expenses
60,000
To Office Administration Expenses
37,000
To Advertising
4,000
To Selling Expenses(fixed)
23,000
To Commissions on sales
14,000
To Carriage
11,000
To Net Profit
25,000 4,42,200
4,42,000
Subsequently it was discovered that: i. Advertising materials purchased for Rs. 6,000 and used up in 1998 were included in purchase amount. ii. Plant was installed in December, 1998, installation expenses of Rs. 7,000 were debited to Wages Account. The Plant was expected to bring about net saving in costs equal to 3% of sales. company had taken out various types of policies (all with average clauses); the one for loss for Rs. 1,30,000. On 1st April, 1989 a fire occurred as result of which sales remained below normal for 4 months. Stock salvaged was valued at Rs. 7,500. The following other information supplied to you:Financial Data from 1/1/89 to 31/3/89: Sales : 1,50,000 Purchase : 60,000 Wages : 24,000 Manufacturing Exp.: 18,000 Relevant Sales figures were: Rs. January 1, 1988 to March 31, 1988 1,20,000 April 1, 1988 to July 31, 1988 1,80,000 April 1, 1989 to July 31,1989 30,000 iii.
Expenses on putting the fire out were Rs. 1,000. Ascertain the claims for loss of stock and Loss of Profits. LEC 9: (28 Minutes) 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 Rs. 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 Rs.31,250 (N- 10)
4
LEC 10: (22 Minutes) On account of a fire on 15 June, 2002 in the business house of a company, the working remained disturbed upto 15 Dec., 2002 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 Rs.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 last year. The company incurred an additional expenditure of Rs.12,000 to make sales possible and made a saving of Rs.2,000 in the insured standing charges. Ascertain the claim under the consequential loss policy keeping the following additional information in view: Rs. Actual sales from 15 June, 2002 to 15 Dec., 2002
70,000
Sales from 15 June, 2001 to 15 Dec., 2001
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: 16 June, 2001 to 15 June 2002
5,60,000
LEC 11: (24 Minutes) From the following details, calculate consequential loss claim: 1. Date of fire: 1st September following; 2. Indemnity period : 6 months; 3. Period of disruption: 1st September to 1st February; 4. Sum insured: Rs. 1,08,900; 5. Sales were Rs.6,00,000 for preceding financial year ended on 31 st March. 6. Net profit for preceding financial year Rs.36,000 plus insured standing charges Rs.72,000; 7. Rate of Gross profit 18%. 8. Uninsured standing charges Rs.6,000; 9. Turnover during the disruption period Rs.67,500; 10. Annual turnover for 12 months immediately preceding the date of fire Rs.6,60,000; 11. Standard turnover i.e. for corresponding months (1 st September to 1st February) in the year preceding the date of fire Rs.2,25,000; 12. Increase in the cost of Working capital Rs.12,000 with a saving of insured standing charges Rs.4,500 during the disruption period; 13. Reduced turnover avoided through increase in Working capital Rs.30,000; 14. Special clause stipulated; (a) Increase in rate of G.P. 20% (b) Increase in turnover (Standard and Annual) 10% (Nov 2008)\0
5
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