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Giridhar Case Study

1. Giridhar Clothing Company's warehouse was destroyed by fire on May 7. Based on the available financial information, the closing inventory was estimated to be Rs. 13,640. Subtracting the salvage value of Rs. 500 yields Rs. 13,140 as the cost of inventory destroyed. 2. Alternatively, if the insurance company estimates the damaged and salvaged stock to both be Rs. 500, the implied closing stock is Rs. 1,000. This gives a gross profit of Rs. 7,300 and gross profit ratio of 7.32%. 3. If sales prices increase 2% due to the fire, total sales would rise by 2% to Rs. 101,694.

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267 views9 pages

Giridhar Case Study

1. Giridhar Clothing Company's warehouse was destroyed by fire on May 7. Based on the available financial information, the closing inventory was estimated to be Rs. 13,640. Subtracting the salvage value of Rs. 500 yields Rs. 13,140 as the cost of inventory destroyed. 2. Alternatively, if the insurance company estimates the damaged and salvaged stock to both be Rs. 500, the implied closing stock is Rs. 1,000. This gives a gross profit of Rs. 7,300 and gross profit ratio of 7.32%. 3. If sales prices increase 2% due to the fire, total sales would rise by 2% to Rs. 101,694.

Uploaded by

Sahil Arora
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Case Study

Giridhar Clothing Company

Submitted To:
Submitted By:
Prof. Meena Sharma
Akash Deep Chand
Jyoti 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
Amounts due to suppliers for purchases
Amounts due from customers

17200
4200
2900

The following information was available for the current period:

Paid purchase invoices


Unpaid purchase invoices
Paid sale invoices
Unpaid sale invoices

62100
11000
96200
3500

Paid freight invoices


Unpaid freight invoices
Cheques issued to pay suppliers
Cheques issued for cash purchases
Paying in slips for deposits into banks

2700
400
64800
8100
97400

1.
Particulars

To opening stock
To Freight
-paid
2700
-unpaid
400
To purchases
-paid

Trading Account

Particulars
By Sales
-paid
96200
-unpaid
17200 3500

3100

By Closing Stock

99700

13640

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 stockInventory salvaged
=

13640

500
=

13140

2.
Particulars

To opening stock
To Freight
-paid
-unpaid
To purchases
-paid
-unpaid

Trading Account
Rs. Particulars
By Sales
-paid
96200
-unpaid
17200 3500
2700
400
62100
11000

3100 By Closing Stock


73100

Rs.

99700
1000

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.
Particulars

To opening stock
To Freight
-paid
2700
-unpaid
400
To purchases
-paid

Trading Account

Particulars
By Sales
-paid
98124
-unpaid
17200 3570

3100

By Closing Stock

101694

12044.8

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.

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