A fire occurred on 1st February, 2006, in the premises of Pioneer Ltd., a retail

Question

A fire occurred on 1st February, 2006, in the premises of Pioneer Ltd., a retail store and business was partially disorganised upto 30th June, 2006. The company was insured under a loss of profits for Rs. 1,25,000 with a six months period indemnity. From the following information, compute the amount of claim under the loss of profit policy.
Rs.
Actual turnover from 1st February to 30th June, 2006 80,000
Turnover from 1st February to 30th June, 2005 2,00,000
Turnover from 1st February, 2005 to 31st January, 2006 4,50,000
Net Profit for last financial year 70,000
Insured standing charges for last financial year 56,000
Total standing charges for last financial year 64,000
Turnover for the last financial year 4,20,000
The company incurred additional expenses amounting to Rs. 6,700 which reduced the loss in turnover. There was also a saving during the indemnity period of Rs. 2,450 in the insured standing charges as a result of the fire.
There had been a considerable increase in trade since the date of the last annual accounts and it has been agreed that an adjustment of 15% be made in respect of the upward trend in turnover

Explanation / Answer

Computation of the amount of claim for the loss of profit

Reduction in turnover Rs.

Turnover from 1st Feb. 2005 to 30th June, 2005 2,00,000

Add: 15% expected increase 30,000

2,30,000

Less: Actual Turnover from 1st Feb., 2006 to 30th June, 2006 80,000

Short Sales 1,50,000

Gross Profit on reduction in turnover@ 30% on Rs. 1,50,000 (see working note 1) 45,000

Add: Additional Expenses

Amount of claim under the policy = Rs. 39,390

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