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Required: Calculate the amount of insurance claim.
3. On 31 March 2024 fire occurred in the store of Mbongo Ltd. which deals with
st
the buying and selling of buckets for home use. The company had taken an
insurance policy of TZS 3,000,000 which was subject to the average clause.
The following information are available relating to the period from 1 January to 30
st
th
FOR ONLINE READING ONLY
March 2024.
(a) Inventory as per statement of financial position as at 31 December 2023 was TZS
st
4,780,000;
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(b) Purchases (including purchase of equipment costing TZS 1,500,000) TZS 8,500,000;
(c) Sales (including sale proceeds from disposal machine TZS 2,500,000) TZS
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13,750,000;
(d) The average rate of gross profit is 20% of sales; and
(e) The value of the salvaged goods was TZS 615,000.

Required: Compute the amount of the claim that Mbongo Lt should lodge to the
insurance company.

Chapter summary

The chapter has delved deeply into inventory accounting, focusing on the principles of
record-keeping and valuation methods. It covered fundamental theories, the definitions
and types of inventories, alongside detailed explanations of valuation techniques
like FIFO, LIFO, and WAM. Emphasis has been placed on understanding how these
methods impact inventory valuation, COGS, reported profits, and overall financial
position, particularly in contexts of fluctuating prices. By illustrating scenarios and
outcomes under different valuation methods, the chapter has provided a nuanced
understanding of their implications on financial statements and decision-making
processes within businesses.
Furthermore, the chapter underscores the importance of selecting appropriate inventory
valuation methods based on specific business needs and compliance requirements. It
outlines the provisions of accounting standards like IAS 2, which mandates the use
of either FIFO or LIFO and requires inventory to be valued at the lower cost and net
realisable value. Additionally, the chapter explored alternative valuation methods
such as category and article methods, along with cost estimation techniques using
mark-up and margin.

Student’s Book Form Five
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