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  • Loss of Property and Stocks

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    Anil Yadav
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    The document provides information on calculating loss of property and stock due to a fire: 1) To calculate loss of stock, the insured provides the opening stock value, adds net purchases up to the date of fire, deducts the cost of goods sold, and deducts any salvaged stock. 2) The cost of goods sold can be calculated by deducting the gross profit from sales, where gross profit is a percentage of sales or cost. 3) Loss of stock can also be calculated by preparing a memorandum trading account up to the date of the fire.

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    The document provides information on calculating loss of property and stock due to a fire: 1) To calculate loss of stock, the insured provides the opening stock value, adds net purchases up to the date of fire, deducts the cost of goods sold, and deducts any salvaged stock. 2) The cost of goods sold can be calculated by deducting the gross profit from sales, where gross profit is a percentage of sales or cost. 3) Loss of stock can also be calculated by preparing a memorandum trading account up to the date of the fire.

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    26 views4 pages

    Loss of Property and Stocks

    Uploaded by

    Anil Yadav
    The document provides information on calculating loss of property and stock due to a fire: 1) To calculate loss of stock, the insured provides the opening stock value, adds net purchases up to the date of fire, deducts the cost of goods sold, and deducts any salvaged stock. 2) The cost of goods sold can be calculated by deducting the gross profit from sales, where gross profit is a percentage of sales or cost. 3) Loss of stock can also be calculated by preparing a memorandum trading account up to the date of the fire.

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    © All Rights Reserved
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    Loss of Property and Stocks Due to Fire

    (Calculation and Illustration)


    Article shared by : <="" div="">

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    Loss of Property and Stocks Due to Fire (Calculation and Illustration)!

    Procedure:

    The insured, in the event of fire accident, informs the insurer (Insurance Company) of the
    loss of property and stocks. The insurance contract is usually for a year and the insurer
    indemnifies the insured for the loss suffered.

    In response to the request of the insured, a technical expert is entrusted by the Insurance
    Company; and the technical expert, after investigation, sends his report by stating the amount
    payable by the Insurance Company to the insured. His report, after a careful investigation,
    must reveal the causes due to which the fire broke out and whether the claim is covered by
    the policy or not.

    Claim for Loss of Stock:

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    The values of assets other than stock can be ascertained at any time. The stocks with which
    he deals are not maintained daily. Moreover, stock-taking every day is not possible and is a
    very difficult job. In such a situation, one has to estimate the loss of value of stock on account
    of fire by preparing a statement or a Memorandum Trading Account.

    The items that are needed or available are:

    Step 1: First, try to know the value of opening stock of the year, in which the fire broke out.

    Step 2: To the above (Step 1), add the net purchases made up to the date of fire.

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    Step 3: From the result of Step 2, deduct the cost of goods sold.

    Step 4: From the result of Step 3, deduct the salvaged stock; and the figure finally available
    is the loss of stock due to fire.

    The above, put in a statement, appears like this:


    Calculation of Cost of Goods Sold:

    The cost of goods can be found out in the following ways. Rather, the method of finding out
    the cost of goods sold depends upon the nature of questions.

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    (1) When sales figure has been given in the question along with the rate of Gross Profit, then
    deduct the Gross Profit from the sales in order to get the cost of goods sold.

    That is:

    Sales – Gross Profit = Cost of goods sold

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    (2) When the rate of Gross Profit on sales is given, then the

    Gross Profit = Sales x Rate/100

    (3) When the rate of Gross Profit on cost is given, Gross Profit is found out on the basis of
    sales. For instance, Gross Profit is 25% on cost, and then the sales rate is 125%. Therefore,
    the

    Gross Profit = Sales x 25/125

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    (4) In certain cases, the rate of Gross Profit is not given in the problem. In such a situation,
    the percentage of Gross Profit on sales earned last year is applied to the current year.
    Therefore, by preparing a Trading Account of the previous year, the rate of Gross Profit is to
    be found out. This percentage of Gross Profit is applied to know the estimated Gross Profit in
    the current year, when the fire occurred.

    It is important to note that when calculating the rate of Gross Profit, the abnormal
    circumstances of sales may be ignored. For instance, products, which were damaged, might
    have been sold at a low price or products were sold at higher price during over-demanded
    period. These situations may be ignored when calculating the Gross Profit.
    It is also possible that the rate of Gross Profit may show an increased or decreased trend
    during the previous years – year by year. In such cases, weighted average of these rates can
    be found out and Gross Profit is estimated on the basis of weighted average.

    Loss of stock can also be ascertained instead of Statement (mentioned above), by preparing a
    Memorandum Trading Account, to the date of fire.

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    This account appears as follows:

    Illustration 1:
    Hence, an amount of Rs 23.000 to be claimed from the Insurance Company.

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