This document discusses key concepts related to insurance claims for loss of profit, including indemnity period, short sales, gross profit ratio, annual turnover, standard turnover, standing charges, and average clause. It provides examples to calculate short sales, gross profit percentage, loss of profit, and insurance coverage required using the average clause. The document outlines the steps to solve loss of profit insurance claim problems as: calculate short sales, gross profit percentage, loss of profit, insurance cover required, and apply the average clause.

1. Haribhai V. Desai College, Pune 411002
Department of Commerce
E- Content Development Cell
Third Year B. Com.
Insurance Claim Accounting (Loss of Profit Claims)
Designed by Dr. Yashodhan Mithare

3. Destruction of
stock and other
assets
Effect on regular
functioning of
business
Dislocation
(Stoppage) of
business activities
Failure to achieve
normal business
Reduction in sales
Rent, Salary,
Electricity bill,
interest on loan
need to be paid
Significant
decrease in profit
All these losses
need to be
compensated
through ‘Loss of
Profit’ Policy

4. Indemnity Period
Short Sales
Gross Profit Ratio
Annual Turnover
Standard Turnover
Standing Charges
Average Clause
Important Terms

8. Annual turnover
or sales in the
preceding year
are required for
application of
average clause

9. Standard Turnover 150000
Actual Turnover 100000
Short Sales 50000

10. Standing
Charges
Salaries
and wages
to staff
Rent,
Rates &
Taxes
Interest on
loans /
debentures
Auditor
Fees
Travelling
Expenses
Director
Fees
Standing charges
refer to those
fixed expenses
which are incurred
irrespective of the
reduction in turnover.
Standing Charges

11. Gross profit
Percentage
=
Net profit for the
previous year + Insured Standing
charges of last year
Sales in the previous accounting year
100X
Gross Profit percentage is used to calculate the actual amount
of profit lost by the enterprise due to short sales

12. Calculate
Short Sales
Calculate
Gross Profit
Percentage
Calculate
loss of profit
Calculate
insurance
cover
required
Apply
Average
Clause
Steps to solve the problem

13. Dr. Yashodhan Mithare
mithare@yashodhan.org