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

Verma Ltd's godown was hit by fire. Stock at fire date was ₹10,00,000 at cost, of which ₹1,00,000 was lying in a separate unaffected godown. Policy amount ₹6,00,000 with an average clause. Stock destroyed ₹5,00,000 and salvage ₹50,000. Remaining stock was undamaged. What is the claim?

The claim is ₹2,70,000. Net loss after salvage is ₹4,50,000, and the average clause compares the policy of ₹6,00,000 with total stock of ₹10,00,000 at the fire date, including the unaffected godown, giving 60% recoverable.

  1. A₹2,70,000Correct
  2. B₹2,25,000
  3. C₹3,00,000
  4. D₹4,50,000

Explanation

Net loss = 5,00,000 − 50,000 = ₹4,50,000. Total stock value at fire date, including the unaffected godown, is ₹10,00,000. Claim = 4,50,000 × 6,00,000/10,00,000 = ₹2,70,000. Excluding the unaffected godown (9,00,000) would give ₹3,00,000, which is wrong because average compares with total stock.

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