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CMA Intermediate · Financial Accounting · Insurance Claim for Loss of Stock and Loss of Profit

A fire disrupted Sharma Traders. Standard turnover is ₹10,00,000, short sales during the indemnity period are ₹2,00,000, gross profit rate on turnover is 20%. Insured standing charges are fully covered and the policy sum is adequate. Net profit on turnover is 8% and insured standing charges are 12% of turnover. The claim (ignoring other adjustments) is:

The claim is ₹40,000. The rate of gross profit is net profit 8% plus insured standing charges 12%, giving 20%, which is applied to the shortage in turnover of ₹2,00,000. Using only the net profit rate would wrongly understate the claim at ₹16,000.

  1. A₹16,000
  2. B₹40,000Correct
  3. C₹24,000
  4. D₹80,000

Explanation

Insured gross profit rate = net profit 8% + insured standing charges 12% = 20%. Claim = 20% x short sales ₹2,00,000 = ₹40,000. ₹16,000 uses only the net profit rate, which omits the insured standing charges.

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