On April 30th, 2025, a fire occurred in the godown of KKG Ltd. and most of its stock was destroyed.
The stock-book was burnt but from the records saved the following details were available:
Stock on January 1st, 2025: ₹ 96,000
Purchases less returns from January 1st to the date of fire: ₹ 4,08,000
Sales less returns from January 1st to the date of fire: ₹ 4,64,000
On the basis of the accounts for the past four years, it appears that average gross profit ratio is 30% on sales.
A part of the stock salvaged (which was in good condition) was sold for ₹ 60,000 subsequent to the fire and the balance left was valued at ₹ 17,200.
Find out the amount of claim to be lodged with the insurance company.
Answer (1)
To find out the amount of claim to be lodged with the insurance company by KKG Ltd. after the fire, we need to follow these steps:
Calculate the Cost of Goods Sold (COGS):
The average gross profit ratio is given as 30% on sales. This means that 70% of the sales is the cost of goods sold.
Sales from January 1 to the date of the fire: ₹464,000
COGS = 70% of Sales = ( 0.70 \times 464,000 = 324,800 \
Calculate the Closing Stock before the Fire:
We can use the opening stock, purchases, and COGS to find the closing stock before the fire.
Opening Stock on January 1, 2025: ₹96,000
Purchases from January 1 to the date of the fire: ₹408,000
Using the formula,
Closing Stock = Opening Stock + Purchases − COGS = 96 , 000 + 408 , 000 − 324 , 800 = 179 , 200
Determine the Value of Stock Lost in the Fire:
Total Stock Before the Fire: ₹179,200
Salvaged Stock (sold after the fire): ₹60,000
Stock Valued Remaining (left after salvage): ₹17,200
Therefore, the stock lost in the fire can be calculated as:
Stock Lost = Total Stock − Salvaged Stock Sold − Remaining Stock = 179 , 200 − 60 , 000 − 17 , 200 = 102 , 000
Amount of Claim to be Lodged:
The amount of stock lost due to the fire and thus the amount to be claimed from the insurance company is ₹102,000.
Hence, the claim amount to be lodged with the insurance company is ₹102,000.
