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.1,400,000Increased 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.10,000,000Financial year ends on 31st December.The following are turnovers for four months ended 30 April, 31 August and 31 December respectively.YearSh.Sh.Sh. Jan-AprilMay- AugSept- Dec2017201822,000,00024,000,00050,000,00025,000,00048,000,00031,000,000 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.

a) We have to first Calculate loss of profit for insurance claim. 1. Rate of gross profit=(Net…

Answered: Ngata Ltd. insured under a loss of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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.

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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