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

Stock of Mehta Stores costing ₹6,00,000 was destroyed by fire. Salvage was sold for ₹40,000 and the insurer admitted a claim of ₹4,50,000. What amount of loss will be transferred to the Profit and Loss Account?

The net loss transferred to Profit and Loss is ₹1,10,000. Stock lost at cost of ₹6,00,000 is reduced by salvage proceeds of ₹40,000 and by the admitted insurance claim of ₹4,50,000, leaving ₹1,10,000 as the uninsured loss borne by the business.

  1. A₹1,10,000Correct
  2. B₹1,50,000
  3. C₹1,60,000
  4. D₹2,00,000

Explanation

Loss of stock at cost = ₹6,00,000. Less salvage ₹40,000 = ₹5,60,000. Less insurance claim ₹4,50,000 = ₹1,10,000 to P&L. Option ₹1,50,000 ignores the salvage; ₹1,60,000 deducts salvage and claim from the wrong base.

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