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Insurance claim

purva agarwal (student) (53 Points)

05 April 2012

In insurance claim chapter there is an adjustment - goods having sales value rs 6000 were stolen and no entry was made in books. And also goods having sales value rs 5000 were given as free samples. Ipcc question. Should these be added to sales figure in memo trading account? I think the "sales value less gross profit on that" figure should be deducted from purchases coz if we add it to sales we are.recording unearned profit. answer is given as former treatment. what is the correct one?

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saikiran (CA) (96 Points)
Replied 06 April 2012

Dear Purva,

The former answer is only correct. Hear we are calculating gross profit for the insurance claim so gross profit should be normal gross profit before abnormal situation. Since goods stolen are abonormal incident and free samples are also not repeatative we have to add sales value of those to the sales.

One more method which is very complicated and require information lot of information is, instead of adding those to the sales value, we can deduct the value of purchase of free samples and goods stolen, value of direct expenses on those stocks. (And some adjustments according to FIFO/weighted average method)

So in a simple way its better to add them to sales and obtain normal gross profit.