M Traders have taken out a fire policy of ` 80,000 covering its stock in trade. A fareoccurs on 31st March, 2015 and stock was destroyed with the exception of ` 20,680 worth. Followingparticulars are available from the books of accounts of the firm:Particulars `````Stock on 1st January, 2015 30,000Purchase to the date of fire 1,30,000Sale to the date of fire 90,000Commission paid to the purchase manager on purchase 2%Carriage paid on purchases 800Average gross profit on cost 50%The policy was subject to average clause.You are required to calculate the:(i) Total loss of stock, and (ii) Amount of claim made against the Insurance Co
Question
M Traders have taken out a fire policy of 80,000 covering its stock in trade. A fareoccurs on 31st March, 2015 and stock was destroyed with the exception of 20,680 worth. Followingparticulars are available from the books of accounts of the firm:Particulars `````Stock on 1st January, 2015 30,000Purchase to the date of fire 1,30,000Sale to the date of fire 90,000Commission paid to the purchase manager on purchase 2%Carriage paid on purchases 800Average gross profit on cost 50%The policy was subject to average clause.You are required to calculate the:(i) Total loss of stock, and (ii) Amount of claim made against the Insurance Co
Solution
(i) Total Loss of Stock:
First, we need to calculate the value of the stock at the time of the fire.
The opening stock on 1st January, 2015 was ` 30,000.
The purchases made up to the date of the fire were ` 1,30,000.
The sales up to the date of the fire were ` 90,000.
The gross profit on cost is 50%, so the cost of goods sold is 90,000 / (1 + 50%) = 60,000.
Therefore, the value of the stock at the time of the fire is 30,000 (opening stock) + 1,30,000 (purchases) - 60,000 (cost of goods sold) = 1,00,000.
The stock worth 20,680 was saved, so the total loss of stock is 1,00,000 - 20,680 = 79,320.
(ii) Amount of Claim Made Against the Insurance Co:
The policy was subject to an average clause, which means that if the insured value ( 80,000) is less than the actual value of the stock at the time of the fire ( 1,00,000), the claim will be reduced proportionately.
Therefore, the amount of the claim is 79,320 (loss) x 80,000 (insured value) / 1,00,000 (actual value) = 63,456.
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