Page 78 - Accountancy_F5

Example 2.14
The inventory of Amina’s store was destroyed by fire on 30 June 2022. Salvage
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amount of inventory was valued at TZS 920,000. On 1 June 2022 balance of inventory
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was valued at TZS 4,000,000, purchases during the month were TZS 80,000,000 and
sales were TZS 100,000,000. The entity sells goods at cost plus 25 per cent.
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Required:
(a) Calculate the cost of goods destroyed by fire on 30 June 2022 (use statement of
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insurance claim); and
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(b) Assuming that there is no average clause in the insurance policy; calculate the
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amount of insurance claim if:

(i) Sum insured was TZS 3,000,000.
(ii) Sum insured was TZS 4,000,000.

Solution 2.14

(a) Cost of goods destroyed by fire on 30 June, 2022
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Statement of insurance claim as at 30 June 2022
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Details TZS TZS
Opening inventory 4,000,000
Add: Purchases 80,000,000
Cost of goods available for sale 84,000,000
Less: Cost of sales
Sales 100,000,000
Less: Gross profit (W1) 20,000,000 80,000,000
Closing inventory 4,000,000
Less: Amount of salvage inventory 920,000
Cost of goods destroyed by fire 3,080,000
Workings:

W1: Determining the amount of gross profit:
Gross profit = 25% on cost. This is mark-up. Change it to margin

Numerator
Changing mark - up to m argin = # 100
Numerator + Deno minator

25 25 1
= 100 + 25 # 100 = 125 # 100 = 5 # 100 = 20 %

Gross profit = 20%×TZS 100,000,000 = TZS 20,000,000

Student’s Book Form Five
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