CA Student
15927 Points
Joined May 2011
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Originally posted by : Gauri Agarwal |
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Ques:Mr A prepares accounts on 30th september each year,but on 31st december,2001 fire destroyed the greater part of his stock,following information was collected from his books:
stock as on 1.10.2001 29700
Purchases from 1.10.2001 to 31.12.2001 75000
wages from 1.10.2001 to 31.12.2001 33000
sales from 1.10.2001 to 31.12.2001 140000
The rate of gross profit is 33 1/3% on cost.stock to the value Rs 3000 is salvaged.Insurance policy was for Rs 25000 and claim was subject to average clause.
Additional information :
(i) stock in the beginning was calculated at 10% less than cost.
(ii) a plant was installed by firms own worker.He was paid Rs500 which was included in wages.
(iii) Purchases include the purchases of the plant for Rs 5000
You are required to calculate the claim for the loss of stock.
In the above question how we are going to calculate Gross profit.
Please help. |
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Step 1: Memorandum Trading Account for the period 1.10.2001 till the date of fire 31.12.2001
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To Opening Stock
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33000
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By Sales
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140000
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(29700*100/90)
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To Purchases
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75000
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By Stock on the date of fire
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30500
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(-) cost of plant
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5000
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70000
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(balancing figure)
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To Wages
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33000
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(-) paid for plant
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500
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32500
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To Gross Profit
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35000
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(25% on Sales) – See Note 1
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Note 1:
Gross Profit = 33 1/3% of the cost price
It is also assumed as 1/3 on the cost price
i.e. cost price is 3 and the gross profit is 1
Since sale price= cost price + gross profit
Cost Price (3) + Gross Profit (1) = Sale Price (4)
Therefore Gross Profit ratio in terms of sale price= ¼ or 25% on sale price
Step 2: Calculation of the amount of the claim
Stock as on the date of fire = 30500
(-) Value of salvaged stock = 3000
Amount of claim (Net loss suffered) = 27500
Step 3: Application of Average Clause
Here, policy amount (25000) is less than the stock on the date of fire (30500). So, average clause is applied.
Average Clause= (Loss suffered X sum insured) / Stock on date of fire
= (27500 X 25000) / 30500 = 22541
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