- The document discusses fire insurance policies that businesses take out to cover loss of stock from fire. - It provides steps for lodging an insurance claim after a fire, which include calculating gross profit percentage, preparing a memorandum trading account, and deducting any salvaged stock from total stock value. - An example is given showing how to calculate the claim amount based on stock values and trading details provided before and up to the date of a fire. The memorandum trading account balances the closing stock value which is then used to determine the claim.

1. ANMOL GUPTA
B.COM -1
2146/13

2. 
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Every business unit has to maintain the stock of
goods to meet the requirement.
The stock of goods kept in the business
premises subject to risk of loss by fire.
For protecting itself against such loss, A
business unit takes fire insurance policy.
It covers loss of stock by fire and undertakes to
compensate the business unit for loss of stock

3. 
To lodge the claim for the loss of stock by fire, following points
are considared :-
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Percentage of gross profit on sales
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Prepare memorandom trading account of the current year upto
the date of fire on the basis of opening stock, purchases and
sales from the beginning of the year upto the date of fire and
estimated gross profit on the basis of last year G.P .
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The balancing figure in memorandom trading account will be the
estimated value of stock in hand on the date of fire .

4. 1.
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The third step is to deduct the value of stock
salvaged from the value of stock in hand on
the date of fire .
The resultant figure is the amount of claim for
the loss of stock to be lodged with the
insurance company.

5. 
A fire insurance policy usually includes an average clause to
discourage the under insurance of stock or any asset.
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The effect of this clause is that if the value of stock or
any asset insured on the date of fire is more than the
amount of policy taken, the full value of stock or any asset
destroyed does not become payable to the insured but the
insurance company pays the proportion of the loss which the
amount of policy taken bears to the total value of stock or any
asset in hand on the date of fire.

6. value of policy
Value of goods lost
value of closing
stock
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The above mentioned formula is
useful in estimating the actual claim.

7. 
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ILLUSTRATION-1
A fire occurred in the premises of A&CO. on 25 th April
2012. From the following particulars ascertain the
amount of claim to be lodged in case of loss of stock
which was insured .
Stock on 1-1-2012 - 250000
Purchases upto the date of fire – 10,00,000
Wages – 2,00,000
Production expenses – 1,00,000
Sales upto the date of fire – 15,00,000
Stock salvaged – 57500
Gross profit ratio – 15%

8. 
MEMORANDOM TRADING ACCOUNT
PARTICULARS AMT.
PARTICULARS
To opening - 250000
stock
To purchases – 10,00,000
To wages
- 2,00,000
To production – 1,00,000
To gross profit – 2,25000
1775000
By sales –
AMT.
15,00,000
By closing stock - 275000
(balancing figure)
1775000

9. 
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stock on date of fire
- stock salvaged
Claim to be lodged
= 2,75000
= 57500
= 2,17,500

10. 
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stock on date of fire
- stock salvaged
Claim to be lodged
= 2,75000
= 57500
= 2,17,500