Page 308 - Fire Insurance Ebook IC 57
P. 308
Fire and Consequential Loss Insurance
(iii) Net Profit - This is the turnover minus variable
and standing charges.
The following example will illustrate the above
definitions:
Before Fire (Rs) After Fire (Rs)
Turnover 50,00,000 25,00,000
Production Costs 35,00,000 (70%) 17,50,000 (70%)
Standing Charges 10,00,000 (20%) 10,00,000 (40%)
Net Profit 5,00,000 (10%)
Net Loss 2,50,000
(Rs. 25 Lacs -17.5 Lacs -10 Lacs)
(b) Measure of indemnity - Each of the three elements,
which constitute the turnover bears a constant
relationship to the whole which can be expressed
as a percentage. Thus in the above example, variable
charges constitute 70% of the turnover and gross
profit constitutes 30% of the turnover.
The proportion the gross profit bears to the turnover
during a given period is called the rate of gross profit.
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