Case StudyGiridhar Clothing Company

Submitted To: Submitted By:Prof. Meena Sharma Akash Deep Chand Jyoti Singh Parneet Kaur Raunaq Singh

Case Overview

• Warehouse of Giridhar Clothing Company destroyed in fire on May 7• Inventory was last taken on March 31. Following information was

available from the March 31 financial statements:• Merchandise inventory 17200• Amounts due to suppliers for purchases 4200• Amounts due from customers 2900

• The following information was available for the current period:• Paid purchase invoices 62100• Unpaid purchase invoices 11000• Paid sale invoices 96200• Unpaid sale invoices 3500

• Paid freight invoices 2700• Unpaid freight invoices 400• Cheques issued to pay suppliers 64800• Cheques issued for cash purchases 8100• Paying in slips for deposits into banks 97400

1.

Trading AccountParticulars ₹ Particulars ₹

To opening stock 17200

By Sales -paid 96200 -unpaid 3500 99700

To Freight -paid 2700 -unpaid 400 3100 By Closing Stock 13640To purchases -paid 62100 -unpaid 11000 73100 To Gross Profit (@20% of Sales) 19940 113340 113340

Since the closing inventory on May 7 as per the average gross profit of past two years comes at Rs. 13640, this will be the inventory present in the warehouse at the time of fire. The insurance company estimated the salvage value to be Rs. 500, so the cost of inventory destroyed in fire: Cost of inventory destroyed = Closing stock- Inventory salvaged = 13640 - 500 = ₹ 13140 So, cost of inventory destroyed = ₹ 13140

2.

Trading AccountParticulars Rs. Particulars Rs.

To opening stock 17200

By Sales -paid 96200 -unpaid 3500 99700

To Freight -paid 2700 -unpaid 400 3100 By Closing Stock 1000To purchases -paid 62100 -unpaid 11000 73100 To Gross Profit (@7.32%) 7300 100700 100700

Since the insurance company has estimated the damaged stock as well as the salvaged stock at Rs. 500 each, so the total closing stock according to the insurance company is Rs. 1000. This leaves the gross profit to 7300. So the implicit Gross Profit Ratio as per the insurance company is: Gross Profit Ratio = (Gross Profit/Net Sales) x 100 = (7300/99700) x 100 = 7.32%

3.Trading Account

Particulars ₹ Particulars ₹

To opening stock 17200

By Sales -paid 98124 -unpaid 3570 101694

To Freight -paid 2700 -unpaid 400 3100 By Closing Stock 12044.8

To purchases -paid 62100 -unpaid 11000 73100 To Gross Profit (@20% of Sales) 20338.8 113738.8 113738.8

When the sales price increases by 2%, the total sales rise by 2%. This leads to an increase in estimated gross profit and a decrease in estimated closing stock. This will lower the claim towards the insurance company.