1
INSURANCE
QUESTION 1
SUGGESTED SOLUTION
WHITE SAND LIMITED
Calculation of gross profit percentages
Trading account for the year ended 30 June 20X8
Total
R
Opening Inventories
48 000
Purchases
282 000
Closing Inventories
(40 000)
Cost of sales
290 000
Gross profit
94 000
Sales
384 000
Gross profit percentage
Sale proceeds
%
Cost
100
Gross profit
25
Sales
125
Sale
R
Normal
R
32 000
8 000
40 000
20%
258 000
86 000
344 000
25%
Application of gross profit percentages
Trading account for the three months ended 31 March 20X9
Total
Sale
R
R
Opening Inventories
40 000
Purchases
164 000
Closing Inventories
(20 000)
Cost of sales
184 000
64 000
Gross profit
56 000
16 000
Sales
240 000
80 000
Gross profit percentage
20%
Normal
R
120 000
40 000
160 000
25%
R14 000 inventories was destroyed (R20 000 theoretical less CP of amount in
showroom R6 000)
Calculation of claim
Theoretical inventories on hand R20 000 is more than insurance cover R10 000,
therefore average clause must be applied.
Normal sales
10 000
x
[20 000 - 6 000]
CP
75
6 000
20 000
GP
25
SP
100 8 000
=
R7 000
FRK 100 Insurance solutions 2020
2
QUESTION 2
SUGGESTED SOLUTION
FIREARMS UNLIMITED
1.
Calculate gross profit percentage for previous year
Total
R
Opening Inventories
52 000
Purchases
262 000
Closing Inventories
(66 000)
Cost of sales
248 000
Gross profit
127 000
Sales
375 000
Gross profit percentage
Sale
R
Normal
R
44 000
11 000
55 000
# 20%
204 000
116 000
320 000
36,25%
# Profit mark-up on cost changed to gross profit percentage
Sale proceeds
Cost price
100
Gross profit
25
Selling price
125
25/125
=
20%
Normal sales
Cost price
Gross profit
Selling price
36,25%
2.
116 000
320 000
116000/320000
=
Calculate theoretical Inventories at date of fire
Total
R
Opening Inventories
66 000
Purchases
142 750
Closing Inventories
(53 800)
Cost of sales
154 950
Gross profit
72 050
Sales
227 000
Gross profit percentage
Sale
R
Normal
R
50 400
12 600
63 000
20%
104 550
59 450
164 000
36,25%
R53 800 – R17 000 = R36 800 inventories was destroyed in the fire.
Average clause not applicable as over-insured. Insurance cover R59 400 >
theoretical inventory R53 800.
Claim against insurance company: R53 800 - R17 000
= R36 800
FRK 100 Insurance solutions 2020
3
QUESTION 3
SUGGESTED SOLUTION
ACCIDENT PRONE
General journals for the three months ended 1 July 20X8
Insurance company (SFP)(asset)
Insurance proceeds (SPL)
(Claim damage from insurance company)
Insurance proceeds (SPL)
Cost of sales (SPL)
(Closing entry)
DR
R
12 750
CR
R
12 750
12 750
12 750
ACCIDENT PRONE
Statement of profit or loss and other comprehensive income for the three
months ended 2 July 20X8
R
Revenue
60 000
Cost of sales
(50 000)
Gross profit(loss)
10 000
Determine gross profit percentage for the period 1/4/20X7 to 31/3/20X8.
Opening inventories
Purchases
Closing inventories
Cost of sales
Gross profit
Sales
Gross profit percentage
FRK 100 Insurance solutions 2020
Total
R
25 000
230 000
(15 000)
240 000
60 000
300 000
20%
4
Apply gross profit percentage for the period 1/4/20X8 to 30/6/20X8
Total
Sale
R
R
Opening inventories
15 000
Purchases
50 000
Closing inventories
(15 000)
Cost of sales
50 000
18 000
Gross profit
10 000
2 000
Sales
60 000
20 000
Gross profit percentage
10%
85%
x
Normal
R
32 000
8 000
40 000
20%
R15 000 = R12 750 inventories destroyed
Theoretical inventories calculated as above R15 000 is less than insurance cover
R30 000. Therefore average clause not applicable.
Amount of claim :
85%
Cost of sales
- Inventories (opening)
- Purchases
- Inventories (closing)
x
R15 000 = R12 750
R(50 000 - 12 750)
R(15 000 - 12 750) or (R15 000 x 15%)
FRK 100 Insurance solutions 2020
15 000
37 250
(2 250)
50 000
5
QUESTION 4
SUGGESTED SOLUTION
BERDYCH GENERAL DEALERS
Opening inventory (given)
Purchases
Closing inventory (balancing)
Cost of sales
Gross profit
Sales
Gross profit percentage (50/150)
Gross loss
1.
2.
3.
4.
R250 176 x 100/115 =
R217 544 x 662/3% =
R2 017 x 100/115 =
Total
Personnel
R
R
128 000
6
168 421
7
(149 053)
5
4
147 368
2 339
(585)
3
1 754
4
R217 544
R145 029
R1 754
CP%
100
Normal
R
2
145 029
72 515
1
217 544
331/3%
(331/3 %)
GP%
- 25%
SP%
75
R
Cost price 100/75 x 3 R1 754
Loss R2 339 – R1 754
Gross loss percentage
5.
6.
7.
R2 339 + R145 029 =
R146 453 x 100/115 =
R128 000 + R168 421 =
8.
Inventory actually damaged
Theoretical inventories
Undamaged inventories
Actual damaged inventories
FRK 100 Insurance solutions 2020
2 339
585
331/3
R147 368
R168 421
R296 421 – R147 368 =
R149 053
(R21 184 x 100/115) = R18 421 x
662/3%
R
149 053
(12 281)
136 772
6
=
R60 000
7
R149 053
R55 056
x
8
R136 772
Amount of claim
Unadjusted claim amount
Damaged merchandise sold
(R6 052 x 100/115) =
Insurance claim on SPL
VAT output
R46 473 x 15/100 =
Final amount of claim against insurance company
R
55 056
(5 263)
49 793
6 971
56 764
9
Note:
1)
The bank column is VAT inclusive if the entity is registered as a VAT vendor.
2)
Sales to personnel were sold at less than cost. Therefore a loss made on these
sales.
FRK 100 Insurance solutions 2020
7
QUESTION 5
SUGGESTED SOLUTION
D KUDLA
General journals for the seven months ended 2 October 20X8
DR
R
Insurance company (SFP)
12 000
Insurance proceeds (SPL)
(Claim damage from insurance company)
Insurance proceeds (SPL)
Cost of sales (SPL)
(Closing entry)
CR
R
12 000
12 000
12 000
D KUDIA
Statement of profit or loss and other comprehensive income for the seven
months ended 2 October 20X8
R
Revenue
22 000
Cost of sales
(21 000)
Gross profit(loss)
1 000
CALCULATIONS
Calculation of gross profit percentage for previous period:
Trading account for the year ended 28 February 20X8
Total
R
Opening inventories
93 000
Purchases
11 000
Closing inventories
(23 000)
Cost of sales
81 000
Gross profit
19 000
Sales
100 000
Gross profit percentage
1.
2.
3.
4.
5.
6.
7.
8.
Sale
R
Normal
R
9 000
1 000
10 000
10%
72 000
18 000
90 000
20%
Total sales = R90 000 + R10 000 settlement discount= R100 000
R(7 000 + 3 000) = R10 000 Special sales
R(100 000 – 10 000 special sales) = R90 000 Normal sales
10% x R10 000 = R1 000
R(10 000 – 1 000) = R9 000
R(81 000 – 9 000) = R72 000
R(90 000 – 72 000) = R18 000
18 000 / 90 000 x 100 = 20% gross profit percentage
FRK 100 Insurance solutions 2020
8
Apply gross profit percentages calculated above
Trading account for the period 1/3/20X8 to 30/9/20X8
Total
R
Opening inventories
23 000
Purchases
20 000
Closing inventories
(25 000)
Cost of sales
18 000
Gross profit
4 000
Sales
22 000
Gross profit percentage
9.
10.
11.
12.
13.
14.
Sale
R
Normal
R
3 600
400
4 000
10%
14 400
3 600
18 000
20%
10% x R4 000 = R400
R4 000 – R400 = R3 600
R18 000 x 20% = R3 600
R18 000 – R3 600 = R14 400
R(3 600 + 14 400) = R18 000
R(23 000 + 20 000) – R18 000 = R25 000
Inventory actually damaged
R
25 000
(10 000)
15 000
Theoretical inventories
Undamaged inventories
Damaged inventories
Claim against the insurance company
20 000
25 000
x
(25 000 - 10 000)
= R12 000 (cost price of claim)
Cost of sales
- Inventories (opening)
- Purchases
- inventories (closing)
R(20 000 - 12 000)
FRK 100 Insurance solutions 2020
23 000
8 000
(10 000)
21 000
9
QUESTION 6
SUGGESTED SOLUTION
CORIC LIMITED
Gross profit mark up on selling price
Credit
%
100
75
175
CP
GP
SP
Public
%
100,0
57,5
157,5
Retailers
%
100
40
140
(175 x 90%)
(175 x 80%)
Sale
%
100
25
125
Cost of sales
Credit sales
General public
Retailers
Sale proceeds
40 000 x 100/175
150 000 x 100/157,5
200 000 x 100/140
20 000 x 100/125
R
22 857
95 238
142 857
16 000
276 952
Trading account for the 8 months ended 31 October 20X9
R
320 000
360 000
(276 952)
403 048
Opening inventories
Purchases
Cost of sales
Inventories 1 November 20X9
Theoretical inventories
Goods not damaged (140 000 x 100/175)
Actual damage
Claim =
340 000
403 048
x
Claim
Inventories sold for
Claim that can be made
FRK 100 Insurance solutions 2020
403 048
(80 000)
323 048
323 048
272 514
(30 000)
242 514
10
QUESTION 7
SUGGESTED SOLUTION
TSONGA DEALERS
Apply gross profit percentages for the nine months ended 8 November 20X1
Total
to
to
31/08/20X1
8/11/20X1
R
R
R
Opening Inventories
82 000
Purchases (502200 + 17600)
519 800
Closing Inventories
(215 570)
Cost of sales
386 230
242 080
144 150
Gross profit
169 090
121 040
48 050
Sales
555 320
363 120
192 200
Gross profit percentage
33 1/3 %
25 %
Closing Inventories
Known theft
Theoretical inventories prior to fire
Inventories not damaged
Actual damage/loss
215 570
(71 710)
143 860
(14 700)
129 160
Note: You were given the sales invoices and therefore they are before settlement
discount was deducted. Therefore you do not need to adjust for effect that settlement
discount would have had on the gross profit percentage.
CP =100
GP = 50
SP =150
GP% = GP / SP
=33 1/3%
= 100
= 33 1/3
= 133 1/3
= 25 %
Calculation of claim subject to average :
(Theoretical insured inventories R143 860 more than insurance cover R75 000)
75 000 x 129 160
143 860
= R67 336 (rounded)
FRK 100 Insurance solutions 2020
11
QUESTION 8
SUGGESTED SOLUTION
VILLA RETAILERS
a)
Determine gross profit percentages for the 9 months ended 30 September
20X1:
Total
Normal
Sale
R
R
R
Opening inventories
70 000
Purchases (calc 1)
125 700
Closing inventories (balancing)
(113 200)
Cost of sales
82 500
76 500
6 000
Gross profit
79 500
76 500
3 000
Sales
162 000
153 0002
9 000
Gross profit percentage (calc 3)
50%
33 1/3%
1
2
3
R(133 100 – 18 000 + 8 100 + 2 500) = R125 700
R204 000/12 months x 9 months = R153 000
Gross profit percentage in respect of sale
Note: You were given the sales invoices and therefore they are before settlement
discount was deducted. Therefore you do not need to adjust for effect that settlement
discount would have had on the gross profit percentage. But you were also given the
purchase invoices and settlement discount was received. The mark-up is always
added to the net cost price (net purchase) amount and therefore we deduct it to get to
our theoretical inventory closing balance.
Normal
%
Cost
Gross profit
Sales
50
50
100
GP%
50/100
50%
b)
-
Discount
%
Sale
%
25
25
50
25
75
25/75
33 1/3%
Apply gross profit percentages for the 3 months ended 31 December 20X1
Normal
R
Opening inventories
Purchases (calc 1)
43 800
Closing inventories (balancing)
(19 800)
Cost of sales
24 000
Gross profit
24 000
Sales (calc 2)
48 000
Gross profit percentage
50%
FRK 100 Insurance solutions 2020
12
1
2
R(50 400 – 5 000+ 900 - 2 500) = R43 800
(R204 000 / 12 months x 3 months) - R3 000 = R48 000
c)
Calculation of claim with application of average:
55 000 x 108 900 (see below) = R 55 000
108 900
Inventories stolen during September 20X1
The inventories stolen during September 20X1 (R8 600 x 50/100) would be included in
the inventories amount calculated as the closing inventories amount at 30 September
20X1 (see no a above R113 200). The amount of the inventories stolen would need to
be deducted from the closing inventories calculated as the claim from the insurance
company can only be made in respect of theoretical inventories on hand at the date of
the incident and lost due to fire (that for which it was insured). Thus the claim would be
limited to:
R(113 200 - [R8 600 x 50/100) = R108 900 inventories damaged /lost due to the fire
Cost of sales
- Inventories (opening)
- Purchases
(8,1’ + 0,9’ + 133,1’ +
50,4’ – 18’ – 5’ – 55’)
- Inventories (closing)
70 000
114 500
(19 800)
164 700
4. VILLA RETAILERS
Statement of profit or loss and other comprehensive income for the year
ended 31 December 20X1
Revenue
Cost of sales
Gross profit(loss)
Other income
Other expenses
Profit for the year
Other comprehensive income for the year:
Total comprehensive income for the year
FRK 100 Insurance solutions 2020
(204’ – 3’ – 15,1’ – 3’ + 9’)
(16’ + 5,4’)
R
191 900
(164 700)
27 200
(21 400)
5 800
5 800
13
QUESTION 9
SUGGESTED SOLUTION
LUKAKU DEALERS
Trading statement for the year ended 31 March 20X8
(Calculation of gross profit percentage)
Opening inventories
Purchases
Closing inventories
Cost of sales
Gross profit (Balancing)
Sales (304 000 + 16 000)
Gross profit percentage (61 200 / 320 000 *100)
Application of gross profit percentage calculated above
Trading account for the period 01/04/20X8 to 30/06/20X8
Total
R
Opening inventories
27 200
Purchases
49 500
Closing inventories (Balancing)
(11 392)
Cost of sales
65 308
Gross profit
14 692
Sales (76 000 + 4 000)
80 000
Gross profit %
R
26 000
260 000
(27 200)
258 800
61 200
320 000
19,125%
Normal
R
Sale
R
56 612
13 388
70 000
19,125%
8 696
1 304
10 000
13,04%
15% Profit on cost = 13,04% gross profit percentage
Cost
Profit
Sales price
Profit on cost
100
15
115
Gross profit %
86,96
13,04
100,00
Note: the sales and purchases account was given and therefore settlement discount
allowed and received have already been deducted. We need to reverse the settlement
discount allowed in the sales account so that we can work with the normal gross profit
percentage. No adjustment is needed to the purchases figure as a mark-up is always
added to the net cost price (net purchases) figure.
No average clause since R15 000 >R11 392
FRK 100 Insurance solutions 2020
14
Inventories claim and amount of inventories destroyed:
R11 392
x
0,80
R9 114
2. LUKAKU DEALERS
Statement of profit or loss and other comprehensive income for the five
months ended 31/08/20X8
Revenue
(R76 000 + R12 500)
Cost of sales
Gross profit
Other income
Other expenses
(R5 261 + R2 139)
Profit for the five months
Other comprehensive income for the 5 months:
Total comprehensive income for the 5 months
R
88 500
(75 417)
13 083
(7 400)
5 683
5 683
Calculations :
1. Closing inventories
%
R
Cost price
80,875
10 109
Gross profit
19,125
2 391
Sales
100
12 500
(R11 392 x 20%) + R10 000 – R10 109 = R2 169
2. Cost of sales
- Inventories (opening)
- Purchases
- Inventories (closing)
(R49 500 – R9 114 + R10 000)
Calc (1)
FRK 100 Insurance solutions 2020
27 200
50 386
(2 169)
75 417
15
QUESTION 10
SUGGESTED SOLUTION
SUGITA RADIOS
Statement of profit or loss and other comprehensive income for the year ended 28
February 20X9
R
Revenue (calc 3)
278 438
Cost of sales
(261 380 )
(228 407 calc 3 + (80 563 – 45 340 – 2 250)calc 4)
Gross profit
17 058
Calculations:
1.Year ended 29 February 20X8
Sales
Cost of sales
Opening inventories
Purchases
Closing inventories
R
570 563
456 450
40 700
487 500
(71 750)
Gross profit
Gross profit percentage
114 113
20%
FRK 100 Insurance solutions 2020
16
2.
Date
01/02
31/03
10/04
30/05
15/06
16/06
30/11
30/12
02/01
Purchases
Units
Price
R
Total
R
500
215
107 500
300
(20)
260
(260)
78 000
(5 200)
200
295
02/01
59 000
+ 2 000
61 000
241 300
Sales
Units
Price
R
95
205
19 475
375
212
79 500
280
232
145
232
64 960
163 935
33 640
(7)
232
3.
Opening inventories
Purchases (a)
Closing inventories
Cost of sales
Gross profit
Sales
Balance
Units
Total
R
R
71 750
241 300
(84 643)
228 407
50 031
278 438
(1 624)
32 016
350
255
755
380
680
660
380
205
205
212
212
233
232
232
Total
R
71 750
52 275
159 775
80 275
158 275
153 075
88 115
235
435
232
265
54 475
115 475
442
265
117 099
Normal
(Feb- Nov)
R
Price
R
Discounted
(Dec – Jan)
R
b
163 935
e
c
204 919
f
64 472
73 519
a) 107 500 + 78 000 – 5 200 + (59 000 + 2 000) = 241 300
b) Cost of sales (Normal sales excluding Dec & Jan.): 19 475 + 79 500 + 64 960 = 163 935
c) Normal sales: b163 935 x 100/80(GP Calc) = 204 919
d) Bulk sale:
½ units at 100% of price + ½ units at 75% of price = 35 500
35 500/ 1,75 = 20 285 at full price for ½ the units and (20 285 x 2) 40 570 for all the units
sold in January
Or
Let x = normal price for all units sold
0,5x + 0,5(0,75x) = R35 500
X = 40 571 (rounding difference)
e) Cost of sales (discounted sales including Dec & Jan.): 33 640 – 1 624 + (d40 570 x
80/100) = 64 472
f) Discounted sales: (32 016 x 100/80 x 95/100) + 35 500 = 73 519
FRK 100 Insurance solutions 2020
17
Inventories damaged amounts to R84 642 – (5 100 x 80/100) = R80 562
4.
Average clause
R
50 000
84 643
Damaged goods
sold
X (84 643 – (5 100 x 80/100))
47 590
15 x 150
(2 250)
45 340
Alternative calculation for cost of sales
Opening inventories
Purchases (a241 300 -2 250 – 45 340(calc 4))
Closing inventories (5 100 x 80/100)
261 380
71 750
193 710
(4 080)
2)
Dr
R
Inventories loss (SPL)
Inventories (SFP)
Cost of sales (SPL)
Inventories loss (SPL)
Insurance company (SFP)
Insurance proceeds (SPL)
Insurance proceeds (SPL)
Cost of sales (SPL)
Bank (SFP)
Sale of damaged items (SPL)
Sale of damaged items (SPL)
Cost of sales (SPL)
Cr
R
80 563
80 563
80 563
80 563
45 340
45 340
45 340
45 340
2 250
2 250
2 250
2 250
3)
The allowance for settlement discount allowed balance will be subtracted from the
trade debtors balance at year end and the net amount will be presented as trade
receivables in the statement of financial position. The reason for this is that the trade
debtors must be measured at fair value. Fair value is “the price that would be
received to sell an asset…in an orderly transaction between market participants at
the measurement date.” This means that the amount that would be received in the
future from the debtor should be reflected at year end. The allowance account
balance should only have discounts that will still be given to debtors in the future and
any forfeited discount should be eliminated from this account.
FRK 100 Insurance solutions 2020