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

Sharma Traders' godown was flooded on 10 March. Stock at cost on that date was calculated at ₹3,20,000 and stock saved was valued at ₹70,000. The policy is for ₹2,00,000 and is subject to an average clause. Claim is computed on the loss of ₹2,50,000. Stock value at the date was ₹3,20,000 in total. What claim is payable?

The claim payable is ₹1,56,250. Because the stock was underinsured, the average clause applies: loss of ₹2,50,000 multiplied by the policy amount of ₹2,00,000 and divided by the stock value of ₹3,20,000. The policy limit is not exceeded, so the proportionate amount is paid.

  1. A₹1,56,250Correct
  2. B₹2,00,000
  3. C₹2,50,000
  4. D₹1,25,000

Explanation

Average clause: claim = loss × policy amount / value of stock at the date = 2,50,000 × 2,00,000 / 3,20,000 = ₹1,56,250. The ₹2,00,000 option is the policy limit and ignores underinsurance; ₹2,50,000 ignores the clause altogether.

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