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

Stock costing Rs 6,00,000 was destroyed by fire in the godown of Mehta Enterprises. Damaged goods were sold as salvage for Rs 50,000, and the insurer admitted a claim of Rs 4,00,000. What amount is finally transferred to the Statement of Profit and Loss as loss by fire?

Rs 1,50,000 goes to the Profit and Loss account. The stock lost at cost is Rs 6,00,000; from this the salvage sale of Rs 50,000 and the admitted claim of Rs 4,00,000 are deducted, leaving the uninsured balance as the abnormal loss to be written off.

  1. ARs 2,00,000
  2. BRs 1,50,000Correct
  3. CRs 1,00,000
  4. DRs 50,000

Explanation

Loss of stock by fire account is debited with 6,00,000. It is credited with salvage 50,000 and the claim admitted 4,00,000. The balance 6,00,000 - 50,000 - 4,00,000 = 1,50,000 is the uninsured loss written off to profit and loss. Rs 2,00,000 ignores the salvage proceeds.

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