INSURANCE CLAIMS ACCOUNT

Claims can be   made by an organisation in the following situations

• Loss of inventory/stock
• Loss of profit (consequential loss)

INVENTORY/STOCK LOSS

PROCEDURES FOR CALCULATION OF CLAIMS/STOCK LOSS

• Preparation of the previous year trading account
• Calculate the gross profit percentage  before the fire
• Determine value of stock destroyed in the fire
• Ascertain whether the average clause is applicable.
• Determine  the gross profit percentage.

FINANCIAL ACCOUNTING 1

ASSIGNMENT 1

Fire destroyed  some  of  ABC   company’s stock and records as at 31/10/2012. The following information is available is available

STOCK AS AT  1^ST OCT  2012 400,000NGN

SALES –    ___________      1,000,000    

PURCHASE ___________   800,000

SALVAGED STOCK 31/10/2012    300,000

GROSS PROFIT  PERCENTAGE 20%

WHAT IS THE VALUE OF STOCK LOSS?

SOLUTION

Where  the gross profit  percentage is not given.  This can be found by  preparing  trading accounts for the previous years. Also if there are adjustment in stock value this should be shown.

AVERAGE CLAUSE: If clause inserted in the policy , the insured can only cover  a proportion of the claims= Annual insured  X loss

                            Estimated value of stock

CONSEQUENTIAL LOSS CLAIMS

INSURED  STANDING CHARGES- expenses stated in the policy which the insured wishes to recover in the event  of damages e.g. rent

ASSIGNMENT

The company packaged a consequential loss insurance policy with AZ INSURANCE LTD on 1^st January 2018 with  9 months indemnity.

They could not operate until 1^st Dec 2018.

In the year ended 31^st December 2017.the Turnover N30million with net profit  N2,000,000.

The insured standing charges and uninsured standing charges were N7,000,000 AND N3,000,000 respectively while the insured total sum was N5million.

During the period of interruption, the turnover was N3,500,000 compared with the corresponding period in the preceding  year when turnover was  N28M.

ADDITIONS

– I increase in the cost of working was N300,000 during the period  of interruption

-the rise in the cost of working allowed the company to avoid  a loss in turnover of 1,5000,000

– Adiitional cost of working the turnover would have been  N1.8m

• Savings from insured charges were N800,000

REQUIRED.

1. COMPUTE THE CONSEQUENTIAL LOSS
2. CALCULATE THE REVISED INSURANCE CLAIMS ASSUMING A SPECIAL CLAUSE  OF INCREASE IN ANNUAL TURNOVER AND STANDING  TURNOVER BY 14^Tpercent & COST OF WORKING BY  N400,000

SOLUTION .

Consequential loss claim

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