Ngata Ltd. insured under a loss of profits policy of Sh.16,000,000. The company’s premises were partly destroyed by fire which took place on 1 May 2018 and the business resumed normal operations on 1 September 2018. Given below is the information extracted from the books of the company relating to the policy: Period of indemnity is six months. Net profit for preceding financial year – Sh.8,800,000. Insured standing charges – Sh.9,600,000. Uninsured standing charges – Sh.1,400,000 Increased cost of working – Sh.5,000,000. Savings in insured standing charges – Sh.800,000. Reduction in turnover avoided through increase in cost of working – Sh.10,000,000 Financial year ends on 31st December. The following are turnovers for four months ended 30 April, 31 August and 31 December respectively.
Ngata Ltd. insured under a loss of profits policy of Sh.16,000,000. The company’s premises were partly destroyed by fire which took place on 1 May 2018 and the business resumed normal operations on 1 September 2018. Given below is the information extracted from the books of the company relating to the policy: Period of indemnity is six months. Net profit for preceding financial year – Sh.8,800,000. Insured standing charges – Sh.9,600,000. Uninsured standing charges – Sh.1,400,000 Increased cost of working – Sh.5,000,000. Savings in insured standing charges – Sh.800,000. Reduction in turnover avoided through increase in cost of working – Sh.10,000,000 Financial year ends on 31st December. The following are turnovers for four months ended 30 April, 31 August and 31 December respectively.
Chapter16: Accounting Periods And Methods
Section: Chapter Questions
Problem 34P
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- Ngata Ltd. insured under a loss of profits policy of Sh.16,000,000. The company’s premises were partly destroyed by fire which took place on 1 May 2018 and the business resumed normal operations on 1 September 2018.
Given below is the information extracted from the books of the company relating to the policy:
- Period of indemnity is six months.
- Net profit for preceding financial year – Sh.8,800,000.
- Insured standing charges – Sh.9,600,000.
- Uninsured standing charges – Sh.1,400,000
- Increased cost of working – Sh.5,000,000.
- Savings in insured standing charges – Sh.800,000.
- Reduction in turnover avoided through increase in cost of working – Sh.10,000,000
- Financial year ends on 31st December.
- The following are turnovers for four months ended 30 April, 31 August and 31 December respectively.
|
Year |
Sh. |
Sh. |
Sh. |
|
Jan-April |
May- Aug |
Sept- Dec |
|
|
2017 2018 |
22,000,000 24,000,000 |
50,000,000 25,000,000 |
48,000,000 31,000,000 |
10. Owing to reasons acceptable to insurers, the special circumstances clause recommended the following:
- Increase of annual and standard turnover by 20%
- Increase of rate of gross profit of 2%
Required:
a) A statement showing the calculation of the amount of the consequential loss claim.
b) Describe a typical case study of a company that suffered a major loss and the how it went through the compensation process.
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