CMA Intermediate · Financial Accounting · Insurance Claim for Loss of Stock and Loss of Profit
Fire destroyed part of the stock of Mehra Traders. The stock was insured for ₹6,00,000 under a policy containing an average clause. Stock at cost on the date of fire was ₹8,00,000 and the loss of stock was ₹2,00,000. Assuming the loss was within the policy limit, what is the maximum claim receivable?
The claim is ₹1,50,000. Because the stock was underinsured (₹6,00,000 against ₹8,00,000), the average clause scales the loss of ₹2,00,000 by 6/8, giving ₹1,50,000 recoverable from the insurer.
- A₹2,00,000
- B₹1,50,000Correct
- C₹1,00,000
- D₹2,66,667
Explanation
Under the average clause, claim = loss × policy amount / value of stock at the date of fire = 2,00,000 × 6,00,000 / 8,00,000 = ₹1,50,000. Option ₹2,00,000 ignores underinsurance. ₹2,66,667 inverts the ratio.
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