1. 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:

1. Period of indemnity is six months.
2. Net profit for preceding financial year – Sh.8,800,000.
3. Insured standing charges – Sh.9,600,000.
4. Uninsured standing charges – Sh.1,400,000
5. Increased cost of working – Sh.5,000,000.
6. Savings in insured standing charges – Sh.800,000.
7. Reduction in turnover avoided through increase in cost of working – Sh.10,000,000
8. Financial year ends on 31st December.
9. 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.

Answer rating: 100% (QA)

Step 1 Introduction a We have to first Calculate loss of profit for insurance claim Step 2 solution ... View the full answer