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Advance Financial Accounting Unit 2 Accounts of Life Insurance Companies
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Accounts of Life Insurance Companies
ADVANCE FINANCIAL ACCOUNTING
| VERY SHORT TYPES QUESTION & ANSWERS |
A. Multiple choice question and answers:
1. Insurance business in India is regulated by:
(a) SEBI.
(b) RBI.
(c) IRDA.
(d) Government.
Ans: (c) IRDA.
2. Fixed payment at regular intervals made by the insured for a contract of insurance is called:
(a) Commission.
(b) Premium.
(c) Bonus.
(d) Sum assured.
Ans: (b) Premium.
3. Life insurance contract is a contract of:
(a) Indemnity.
(b) Guarantee.
(c) Both of the above.
(d) None of the above.
Ans: (b) Guarantee.
4. A valuation balance sheet is prepared by
(a) A trading company.
(b) A banking company.
(c) A life insurance company.
(d) None of the Above.
Ans: (c) A life insurance company.
5. In the case of life insurance companies, which account is prepared to ascertain profit?
(a) Revenue account.
(b) Profit and Loss account.
(c) Valuation balance sheet.
(d) None of these.
Ans: (c) Valuation balance sheet.
6. Valuation balance sheet is
(a) A statement of assets and liabilities on a particular date.
(b) Prepared to determine profit by comparing Life Assurance Fund with net liability.
(c) A statement of all assets and liabilities as market value.
(d) None of the above.
Ans: (b) Prepared to determine profit by comparing Life Assurance Fund with net liability.
7. In life insurance business, claims may arise on account of:
(a) Death of policy holder.
(b) Maturity.
(c) Death or maturity.
(d) None of these.
Ans: (c) Death or maturity.
8. The consideration in insurance for covering the risk is called:
(a) Claim.
(b) Premiums.
(c) Annuity.
(d) None of these.
Ans: (b) Premium.
9. An arrangement between two insurance companies whereby one transfers a part of risk to other company is called:
(a) Reinsurance.
(b) Double Insurance.
(c) Joint Insurance.
(d) Maha insurance
Ans: (a) Reinsurance.
10. Revenue account is also called:
(a) Profit and loss account.
(b) Shareholder’s account.
(c) Policyholder’s account.
(d) Creditors account.
Ans: (b) Shareholder’s account.
B. State whether the following statements are True or False:
1. Life insurance is more appropriate to be called life assurance.
Ans: True.
2. All insurance contracts are contracts of indemnity.
Ans: False.
3. Life insurance contract is a contract of guarantee.
Ans: True.
4. Life insurance contract is a contract of indemnity.
Ans: False.
5. There is no difference between a wagering contract and contract of insurance.
Ans: True.
6. Bonus payable on maturity of the policy is called reversionary bonus.
Ans: False.
7. A life insurance business is said to have earned profit only if its life assurance fund exceeds its net liability on all outstanding policies.
Ans: False.
8. Life assurance fund represents profits of the life insurance company.
Ans: False.
9. Surrender value paid is shown in the Revenue account in Schedule 4: Benefits Paid (Net).
Ans: True.
10. A balance sheet of a life insurance company is called a ‘Valuation balance sheet’.
Ans: False.
C. Fill in the blanks:
1. Life insurance is more appropriate to be called _________.
Ans: life assurance.
2. Life insurance combines the elements of __________.
Ans: protection and savings.
3. Revenue accounts of insurance companies are prepared under the provisions of __________.
Ans: IRDA Regulation’ 2002.
4. Valuation balance sheet is prepared in case of life assurance business only to ascertain __________.
Ans: surplus or deficit.
5. Annuity is an expense and it is shown under the _________.
Ans: head benefits paid (Schedule 4).
6. Consideration for annuities granted is a source of __________ for a life insurance companies
Ans: income.
7. Revenue account of Life Insurance companies ___________.
Ans: Form A – RA.
8. Profit and loss account of Life Insurance companies ___________.
Ans: Form A – PL.
9. Balance sheet of Life Insurance companies __________.
Ans: Form A – BS.
10. Revenue accounts of life insurance and general insurance companies have ___________.
Ans: 4 schedules.
| SHORT TYPE QUESTIONS & ANSWERS |
1. What does Elements of an Insurance Contract Mean? What is the Purpose of an Insurance contract?
Ans: The elements of an insurance contract are the standard conditions that must be satisfied or agreed upon by both parties of the contract (the insured and the insurance company). In terms of insurance, these are the fundamental conditions of the insurance contract that bind both parties, validate the policy, and make it enforceable by law. By signing the insurance contract, you have essentially agreed to follow the different elements. Without all of the elements of an insurance contract present, the policy may not be valid, and that means the obligations of both parties may not be enforceable in court.
The elements of an insurance contract are very similar to the elements required for any other legally binding contract with a few extra elements that are special to insurance contracts. You need both types of elements to be present before a valid and proper insurance policy is produced.
The following are the two main purposes of insurance contracts:
(i) Protection against uncertain events: The main purpose of an insurance contract is to make the insured person secure and financially protected from certain uncertain contingencies that would cause a huge financial burden.
(ii) Better management of finances: Many people have the tendency to make poor financial decisions that could potentially leave them without any support when faced with an unfortunate situation. By subscribing to an insurance policy, the insured would be able to make better financial decisions.
2. Difference between reversionary bonus and cash bonus.
Ans: A reversionary bonus is not paid out immediately but is retained in the fund to enhance its maturity value while a cash bonus or cash dividend is paid in cash, with no compounding of interest. Insurer can reinvest cash bonus as per his will which is not possible in case of reversionary bonus. Cash bonus can be withdrawn which is not possible for reversionary bonus.
3. Write the meaning of Reinsurance?
Ans: Reinsurance is an arrangement between companies to share risk under a policy among themselves. Every company has a certain limit for undertaking risk under a policy. When a company undertakes a risk under a policy which exceeds its risk bearing capacity. It takes another company or companies to share the said risk. The part of the risk transferred to other companies or companies is called reinsurance.
4. What is Surrender Value?
Ans: When a policy holder is unable to continue his policy, he can surrender his policy document to the insurer and applies for the termination of the contract. The insurer pays the cash value of the policy to the assured which is known as surrender value. In India a policy is entitled to a surrender value if the premiums on the policy are paid at least for a period of two years or do the extend of one tenth of the total number of premiums stipulated to be paid on the policy.
5. Give accounting treatment of Reversionary Bonus?
Ans: Bonus is allotted as a uniform percentage in addition to the sum assured or sum assured plus existing bonus addition. It is payable along with the sum assured according to the term of the policy. The former is known as simple Reversionary Bonus and the latter is known as compound, Reversionary Bonus. The former is popular and flexible because every time when sources is distributed, some addition is made to the policy amount. So, it is followed in practice. The other one is more equitable but it is difficult to calculate, so it is not followed in practice.
6. What is Insurable Interest?
Ans: It is the precuniary interest where by the policy holder is benefited by the existence of the subject matter and is prejudiced by the death or damage of the subject matter.
7. How profit is ascertained by a life insurance company?
Ans: Most insurers try to price their policies such that the total premiums collected each year are equal to the total amount of claims paid and expenses. Basically, this method called as combined ratio. Combined ratio = Claims + Expenses = Premium.
8. What is the profit of life insurance? What is net profit in insurance?
Ans: The insurance sector’s net profit margin (NPM) for 2019 was roughly 6.3%. Life insurance companies had an average NPM of 9.6%. Property and casualty insurance companies averaged 2.7%. Insurance brokers averaged 8.3%.
Net Profit Margin (also known as “Net Profit Margin Ratio”) is a financial ratio used to calculate the degree of profit of the company produced from its total revenue. It measures the amount of net profit that a company obtains per dollar of revenue gained.
9. Concept of Life fund of an Insurance Company.
Ans: Life Fund, also known as Life Assurance Fund is concerned with Life Insurance (Assurance) business. It is an item that appears on the liability side of the company’s Balance Sheet. For insurance business, claim is an expenditure while premium is an income. As we all know, the difference between income (premium received) and expenditure (claims paid) should be the profit. In the case of life insurance business this approach would pose a problem.
10. Meaning of Insurance and Life insurance.
Ans: Insurance is an arrangement which is represented by a policy in which an individual or entity receives financial protection from insurance companies against losses such as theft, fire, accident, illness, death etc, in return for payment of a specified premium. Insurance is of two types – Life insurance also known as contract of guarantee and general insurance also known as contract of indemnity.
Life Insurance is defined as a contract between the policy holder and the insurance company, where the life insurance company pays a specific sum to the insured individual or his family upon the maturity of the term for which the life is insured or on the death of the insured. That is why life insurance is called a contract of guarantee. The life insurance sum is paid in exchange for a specific amount of premium.
11. When do life insurance companies pay out death benefits?
Ans: Many insurance companies do have a suicide clause for the first two years of the policy, but in almost every other instance, even if the insured was driving drunk and caused his/her own death, the insurance carrier would have to pay out death benefits.
12. Why are profit margins important to an insurance company?
Ans: For insurance companies, annually profit margins represent yearly. profitability averages. These margins measure how well a particular business company does, over a period of time. From the perspective of insurance companies, profit margins are an important part of tracking the internal performance of the company.
13. How do life insurance companies make a profit? When do you get benefits from life insurance?
Ans: State regulators assure that companies admitted in their states are not making “inordinate” profits. Much like a bank they bring together people with similar needs. They provide services to determine how to share the risk that affects all of them, death, collision, fire or something else.
It should be noted that if you purchase a life insurance policy late in life (after age 50) you will only receive partial benefits if you pass away within the first two years of the policy period. Have no fear, though, the insurance companies have done their math.
14. What are the guidelines regarding preparation of revenue account and profit and loss account?
Ans: Guidelines regarding preparation of revenue account and profit and loss account:
(i) Premium income received from business concluded in and outside India shall be separately disclosed.
(ii) Reinsurance premiums whether on business ceded or accepted are to be brought into account at gross value.
(iii) Claims Premium income received from business concluded in and outside India shall be separately disclosed.
(iv) Claims paid.
(v) Specific claims settlement costs.
(vi) Fees and incomes connected with claims shall be included in the claims.
(vii) Income from rent shall include only the realised rent. It shall not record any rational rent incurred must include.
15. What are the guidelines for preparation of balance sheet?
Ans: Guidelines for preparation of balance sheet:
(i) Investments in subsidiary/ holding companies/joint ventures and associates shall be separately disclosed, at cost.
(ii) Short term loans shall include those, which are repayable within 12 months from the date of the balance sheet. Long term loans shall be the loans other than short-term loans.
(iii) Provisions against non-performing assets shall be shown separately.
(iv) Loans considered doubtful and the amount of provision created against such loans shall be disclosed.
(v) Investments made out of catastrophe reserves should be shown separately.
(vi) No items shall be included under the head Miscellaneous Expenditure’ and carried forward unless.
(vii) Some benefit from the expenditure can reasonably be expected to be received in future.
(viii) The amount of such benefit is reasonably determinate.
16. What is annuity? Compare annuity with consideration for annuity granted?
Ans: Annuity may be defined as the amounts periodically made during the lifetime of the annuitant in consideration of the payment of an agreed sum to an insurance company.
Consideration for annuity granted in the following way:
(a) Immediate annuity where annuity starts at the end of the first income period.
(b) Annuity due where the payment of Annuity starts from the term of contract. It means it is paid as soon as the contract is finalised.
(c) Deferred Annuity where the payment of Annuity starts after a deferment of period or at the attainment of certain age by the annuitant under benefit paid annuity paid is an expenses and is shown is Revenue Account after deducting annuity reinsurance.
| LONG TYPE QUESTIONS & ANSWERS |
1. Explain the Key Elements of an Insurance Contract.
Ans: Key Elements of the Insurance Contract are explained:
(i) Offer and Acceptance: When a prospective insured goes to buy an insurance policy, they must fill out an application provided by the insurance company. If they are shopping online, they will complete a digital application. If they are working with an agent or broker, then he or she may fill this out for the customer. The application is legally known as an offer, where the insured offers to make premium payments of a certain dollar amount in return for insurance coverage up to specific limits. Acceptance occurs when the insurance company formally issues the policy, or when the agent or broker issues a certificate of temporary coverage.
(ii) Legal Consideration: This represents the dollar value of the premiums that the insured agrees to pay and the dollar limit of the coverage that the insurer will provide in return. If the insurance company receives a claim that is covered in the policy, then the insurer will pay this claim.
(iii) Competent Parties: Insurance contracts are only valid if both parties are of sound mind and body, referred to legally as “competent parties.” The insured must be at least the legal age of majority and the insurance company must be licensed in the state in which the insured lives.
(iv) Free Consent: Both parties in any insurance contract must enter into the contract with free consent, which means it is on their own volition. There cannot be any fraud, misrepresentation, intimidation or coercion involved when the contract is signed. The contract also cannot be signed as a result of an error.
(v) Legal Purpose: All insurance contracts are required to obey the laws of the land. They must adhere to all state-specific laws that apply to the contract and cover only legal activities. A business that deals in criminal activity would not be covered according to the tenant of legal purpose. Any agreement that is made outside of those laws is null and void.
(vi) Insurable Interest: The insured has an insurable interest when they benefit financially from the person or thing being insured. The insured t will then experience a financial loss if the item or person being insured either dies or is damaged or lost. Prospective insured cannot get coverage on something in which they have no insurance interest.
(vii) Utmost Good Faith: This phrase “utmost good faith” means that both parties in any insurance contract have acted without any type of deception, omission or other form of misrepresentation and that all pertinent facts have been disclosed by both parties.
(viii) Material Facts: Material facts are the factors that affect the risk that is being taken. They consist of the factors that the insurance company needs to know about in order to decide whether to insure the risk or reject it. If an insured applies for life insurance, then the insurer will need to know all about the insured:’ age, Height, Weight, Health, Occupation.
(ix) Full and True Disclosure: This means that both parties are required to completely disclose all material facts pertinent to the insurance policy. There can be no omissions, misrepresentations or twisting of the facts when filling out the application or providing the policy.
(x) Duty of Both the Parties: Both the insured and the insurer have a legal obligation, or duty to disclose all material facts accurately and correctly. The insured does this when they fill out the application, and the insurance company does this by adhering to all of the laws and rules that apply to it.
(xi) Principle of Indemnity: The principle of indemnity applies to most types of insurance policies. It means that the insurance company will compensate the insured with a cash settlement if a covered loss occurs. The idea is that the insured will be in the same position financially that they were in before the loss occurred.
Conversely, the insured cannot receive greater compensation than the amount of the loss. The insurance company is only required to cover the actual monetary value of the loss and no more.
(xii) Doctrine of Subrogation: Subrogation allows the insurer to pursue reimbursement from a third party that caused the covered insurance loss. For example, if another driver crashes into the insured’s car and totals it, then the insured’s insurance company will repay the insured for the loss and then pursue reimbursement from the other driver’s insurance company.
(xiii) Warranties: Warranties are all of the respective promises that are laid out in the insurance contract. They delineate the specific conditions that can trigger a claim and also outline the actions that will be taken by the insurance company as a result of the claim.
(xiv) Conditions: Conditions are the elements that determine whether a claim will be paid out. Paying the policy premiums is the most obvious condition that must be met. But many other conditions can also apply to an insurance policy. Most insurance policies have geographic limits for their coverage in addition to the specific circumstances detailing what the insured must do in order to be paid. Failing to meet these conditions relieves the insurer of the burden of paying the claim. If the insured fails to notify the insurer of a loss or refuses to provide the requested information to the insurance company (such as a medical exam or property inventory) then the insured has breached the contract and will not be reimbursed for the loss.
(xv) Proximate Cause: Proximate cause refers to the actual manner in which a loss was sustained. The insurance company needs to know why a loss occurred so that it can determine whether the cause was an insured peril. For example, if the belongings in an insured’s house were destroyed due to a flood, (the proximate cause) then the homeowner’s insurance company would not pay out for damages unless they were insured for flood loss under the policy, had added a flood rider or bought a separate policy covering floods.
2. Explain the General Instruction for Preparation of Financial Statements of life insurance companies.
Ans: General Instruction for Preparation of Financial Statements of life insurance companies:
(i) The corresponding amounts for the immediately preceding financial year for all items shown in the Balance Sheet, Revenue Account, Profit and Loss Account and Receipts and Payments Accounts shall be given.
(ii) The figures in the financial statements may be rounded off to the nearest thousands.
(iii) Interest, dividends and rentals receivable in connection with an investment should be stated at gross amount, the amount of income tax deducted at source should be included under ‘advances taxes paid and taxes deducted at source’.
(iv) For the purposes of financial statements, unless the context otherwise requires:
(a) The expression ‘provision’ shall, subject to (II) below mean any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any known liability or loss of which the amount cannot be determined with substantial accuracy;
(b) The expression ‘reserve’ shall not, subject to as aforesaid, include any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability or loss;
(c) The expression ‘capital reserve’ shall not included any amount regarded as free for distribution through the profit and loss account; and the expression ‘revenue reserve’ shall mean any reserve other than a capital reserve.
(d) The expression ‘liability’ shall include all liabilities in respect of expenditure contracted for and all disputed or contingent liabilities.
(v) Where:
(a) Any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or
(b) Any amount retained by way of providing for any known liability or loss, is in excess of the amount which in the opinion of the directors is reasonably necessary for the purpose, the excess shall be treated as a reserve and not provision.
(vi) The company shall make provisions for damages under lawsuits where the management is of the opinion that the award may go against the insurer.
(vii) Extent of risk retained and re-insured shall be separately disclosed.
(viii) Any debit balance of the Profit & Loss Account shall be shown as deduction from uncommitted reserves and the balances, if any, shall be shown separately.
3. Explain the meaning of various Insurance Terms.
Ans: Commonly used insurance terms are explained below:
(1) Policyholder: The policyholder is the one who proposes the purchase of the life insurance policy and pays the premium. The policyholder is the owner of the policy and she/he may or may not be the life assured.
(2) Life assured: Life assured is the insured person. Life assured is the one for whom the life insurance plan is purchased to cover the risk of untimely death. Primarily, the breadwinner of the family is the life assured. Life assured may or may not be the policyholder. For instance, a husband buys a life insurance plan for his wife. As the wife is a homemaker, husband pays the premium, thus the husband is the policyholder, and wife is the life assured.
(3) Sum assured (coverage): Life insurance is meant to provide a life cover to the insured. The financial loss that may arise due to the passing away of the life assured is generally chosen as a life cover when buying a life insurance plan. In technical terms, ‘Sum Assured’ is the term used for an amount that the insurer agrees to pay on death of the insured person or occurrence of any other insured event.
You may come across the term ‘sum assured’ at the time of comparing policies online, when buying life insurance plan, and in the policy document. The sum assured is the amount that the life insurance company will pay to the nominee if the insured person dies during the policy tenure. The sum assured is chosen by the policyholder at the time of purchase. To know more and to choose the right coverage, read this.
(4) Nominee: The ‘nominee’ is the person (legal heir) nominated by the policyholder to whom the sum assured and other benefits will be paid by the life insurance company in case of an unfortunate eventuality. The nominee could be the wife, child, parents, etc. of the policyholder. The nominee needs to claim life insurance, if the life assured dies during the policy tenure.
(5) Policy tenure: The ‘policy tenure’ is the duration for which the policy provides life insurance coverage. The policy tenure can be any period ranging from 1 year to 100 years or whole life, depending on the types of life insurance plan and its terms and conditions. Many a times, it is also referred to as policy term or policy duration.
The policy tenure decides for how long the company is providing the risk coverage. However, in the case of whole life insurance plans, the life coverage is till the time life assured is alive.
(6) Maturity age: Maturity age is the age of the life assured at which the policy ends or terminates. This is similar to policy tenure, but a different way to say how long the plan will be in force. Basically, the life insurance company declares up front the maximum age till which the life insurance coverage will be provided to the life insured. For instance, you are 30 years old, you opt for a term plan with a maturity age of 65 years. That means the policy will have a coverage till you are 65 years old, which also means, the maximum policy tenure for a 30-year-old is 35 years.
(7) Premium: The premium is the amount you pay to keep the life insurance plan active and enjoy continued coverage. If you pay the premium before the payment due date and even during the grace period, the policy terminates. There are various options on how you can pay the premium-regular payment, limited payment term, single payment.
(8) Premium payment term/mode/frequency: You can pay the life insurance premium as per your convenience. Regular Premium Payment – You can pay premium regularly throughout the policy term either monthly, quarterly, half-yearly or yearly. Limited Premium Payment – You can choose to pay the premiums for a limited amount of time. In this option, you do not pay till the end of the policy term, but for a certain pre-fixed number of years. For example, 10 years, 15 years, 20 years, and so on.
(9) Riders: Riders are an additional paid-up feature to widen up the scope of the base life insurance policy. Riders are bought at the time of purchase or on policy anniversary. There are different types of riders that can be bought along with the base plan. However, number and type of riders will differ from insurer to insurer.
(10) Death Benefit: You will come across ‘Death Benefit’ quite frequently whenever you are either planning to buy a life insurance plan or comparing different insurance plans online.
The ‘Death Benefit’ is what life insurance company pays to the nominee in case the life assured dies during the policy tenure. If you are thinking whether the sum assured and death benefit are one and the same, then do not be confused. Because the death benefit can be sum assured or even higher than that, which may include rider benefit (if any), and/or other benefits. Except in the case of term insurance – where there is no accrued bonus or guaranteed additions.
(11) Survival/Maturity Benefit: Maturity benefit is the amount that the life insurance company pays when the life assured outlives the policy tenure. Survival benefit is paid when the life assured completes the predefined number of years under the policy. There is no survival or maturity benefit in term plans. However, in other life insurance policies you may find survival benefit or the maturity benefit paid under the plan.
(12) Free-look Period: It is applicable to all new life insurance policies purchased. Free-look period is a time frame during which one may choose to return the purchased policy. If you are not comfortable with the terms and conditions, you can return the policy within the Free-look period. The insurance company after deducting the expenses incurred on medical examination, stamp duty charges and other charges will refund the remaining premium. IRDA specifies free-look period in life insurance is 15 or 30 days after receiving the policy document.
(13) Grace Period: If you couldn’t pay the renewal premium for your policy on time, life insurance company gives you an extension in the number of days after the premium payment due date. A ‘Grace Period’ can be period of 15 days in case of monthly premium payment mode, and 30. days in case of annual premium payment mode. If the policyholder does not pay the premiums even before the end of grace period, the policy gets lapsed.
(14) Surrender Value: If the policyholder decides to discontinue the plan before the maturity age, the life insurance company pays an amount to the policyholder, this is called Surrender Value. But you must clearly read the terms and conditions whether a plan offers any surrender value or not. And if there is a surrender value, how much it will be. Not all life insurance plans have surrender value.
(15) Paid-up Value: In case the policyholder discontinues to pay the premium after a specified period of time, Insurance companies will offer the policyholder an option to convert his policy into a reduced paid-up policy. Under this option the sum insured is reduced in proportion to the number of premiums paid. If other benefits related to the sum insured are payable, these benefits will now be related to the reduced sum insured, which is the paid-up value.
(16) Revival Period: If the policyholder does not pay the premium even during the grace period, the policy lapses. However, if the policyholder still wants to continue, the insurance company provides an option of reactivating the lapsed policy. This must be done within a specific period of time after the grace period ends. This specified period is known as a revival period. To reinstate the lapsed policy, the life insurance company will put forward the request to the team of Underwriters for approval.
(17) Underwriters: Underwriters evaluate the risk involved in insurance. The process of risk evaluation starts before the issuance of insurance policy, and ends with settlement of the claim. Only with the approval of Underwriters, policy is issued to the policyholder. And only after clearance from the Underwriter, the company pays the claim benefit to the nominee.
(18) Tax benefits: All the premiums paid towards the life insurance plan are eligible for deductions under Section 80 (C) of Income Tax Act, 1961. The maximum amount that one can claim as deductible is Rs.1.5 lakh. The benefits paid to the policyholder/nominee are tax-free under Section 10 (10D) of Income Tax Act, 1961.
(19) Exclusions: Before you buy any life insurance, read ‘Exclusions’ carefully. These are things that are not covered under a life insurance policy, and against which if claimed, insurance company wouldn’t pay any benefit. For instance, Suicide, is an exclusion in any life insurance plan.
(20) Claim Process: In case, the life assured passes away during the policy tenure, the nominee needs to lodge a claim to receive the death benefit as mentioned in the policy.
(21) Adjuster: A claims or insurance adjuster is employed by or acts on behalf of an insurance company to examine, evaluate and settle insurance claims. The adjuster must determine the cause of loss, whether the loss is covered by the policy, the value of the loss and the amount of loss payable by the policy. After the evaluation, the adjuster will calculate the insurance company’s potential liability to the insured and negotiate to settle the case.
(22) Certificate of Insurance (COD): While some may confuse a COI with a Declaration Page because both list similar information, a COI also includes space for: the name of the organisation requesting a certificate, known as the Certificate Holder the Certificate Holder’s conditions, exclusions or specific language required.
(23) Declaration Page: Often referred to as your “dec page,” this is a one-page coverage summary that lists the insurance company name and address; name and address of policyholder; policy number and effective dates: start and end dates of coverage; the actual coverage in the contract including limits, premiums and deductibles, and where and how to file a claim. It’s recommended that all the information on this document be carefully reviewed for correctness (check for misspellings of name or incorrect address of policyholders). It’s important to understand what and how much is covered, and what is excluded.
(24) Deductible: The amount of money paid by the insured in a claim before the insurance company kicks in. The insurance company will deduct this amount from the claim payment. This Knowledge Center article covers deductibles extensively. Deductibles and premiums are inextricably linked: higher deductible = lower premium, and vice versa.
(25) Liability Coverage: Liability insurance or coverage protects the insured against claims from injuries and damage to other people and/or property.
(26) Peril: A specific cause of loss that puts an insured item, property or person at risk of injury, loss or damage. An example could be fire, windstorm, flood or theft.
(27) Risk: The possibility of losses, some of which is transferred from insured to insurer for a specific period according to a policy agreement. Insurance companies set prices based on their evaluation of risk.
(28) Assignment: The term assignment means transfer of interest to a third person. The person who transfers the property of policy is known as ‘assigners’ and the person to whom the policy is assigned is known as assignee. On a valid assignment, the assignee becomes entitled to all benefits under the policy.
(29) Whole life policy: As it is clear from the name that these policies are issued for whole life. The sum assured is paid to the nominee or legal heir as the case may be, in the event of assured’s death. Assured cannot set the policy payment during his lifetime. There is one exception in whole life policy. If the assured survives upto the age of hundred years, the sum assured is paid to the assured himself. Though as per the terms and conditions of the policy.
(30) Endowment policies: Endowment insurance is a type of life Insurance contract which provides for the sum assured to be paid either at death or after a fixed number of years whichever comes first-the assured while taking a policy selects the numbers of years. The premium is higher in endowment policies that of whole life policies. The premium of this type of policy may be paid in yearly, half yearly, quarterly, or monthly instalments although single premium forms are also available.
4. Explain the various items appearing in the Revenue Account.
Ans: Explanation of various items appeared in Revenue Account
(i) Claims: Any amount payable by the insurance company is called a claim. In life insurance business, claims may arise due to two reasons i.e. by death or maturity. While calculating the figure for claims, all claims intimated & accepted or not accepted at the end of the year, expenses relating to claims are to be added & out of the total, claims outstanding at the beginning of the year and reinsurance recoveries are to be deducted.
(ii) Annuity: It is an annual payment which a life insurance company guarantees to pay for lump sum money received in the beginning. It is an expense and shown under the head benefits paid (Schedule 4).
(iii) Surrender Value: It an insured is unable to pay the further premium, he can get his policy paid from the corporation. It is the present cash value of the policy which a holder gets from the corporation on surrendering all the rights of the policy.
(iv) Bonus in cash: If the insurer has with profit policy, he will get the bonus from the corporation. If the bonus is paid in cash, it is shown on the debit side of the revenue A/c as an expense.
(v) Bonus in Reduction of Premium: Instead of paying bonus in cash, the insurer may deduct the bonus from the premium due from the insured. This is known as bonus in reduction of premium.
(vi) Premium: The premium received during the accounting period plus outstanding at the end of the period, plus bonus in reduction of premium minus outstanding premium at the beginning of the period minus reinsurance premium is to be shown under the heading “Premium earned (Net)” (Schedule1)
(vii) Registration fees: This is an item of income & shown as other income in the revenue A/c.
(viii) Reinsurance: When a company accepts a business of more value & in order to reduce the risk may pass on some business to the other company, it is called reinsurance.
5. Cash flow statement and Cash Budget.
Ans:
| Basis | Cash flow statements | Cash budget |
| Purpose | Detailed records of cash inflows and outflows, analyzing operating, investing, and financing activities, revealing how cash moves within a company’s operations, investments, and financing. | A financial plan outlining expected cash inflows and outflows, enabling businesses to forecast cash position, identify shortfalls, and plan funding or investments. |
| Level of details | Aggregated breakdowns of cash inflows and outflows, focusing on operating, investing, and financing activities to provide an overview of a company’s cash position. | Detailed plans outlining specific cash inflows and outflows for activities like sales, purchases, salaries, rent, and debt payments, enabling businesses to anticipate cash flows and identify shortages or surpluses. |
| Understanding | A statement of cash flows can help you understand what’s already happened and how you can use that data for better financial planning in the future. | Where cash budgets can help you plan for the month ahead. |
| Meaning | A cash flow statement is a financial statement that shows how cash entered and exited a company during an accounting period. | A cash budget is a document produced to help a business manage their cash flow. |
5. What are the books of Accounts maintained by a life Insurance Company?
Ans: The Insurance Act 1938 requires the following books to be kept by all insurances offices:
Under section 29:
(a) The register of policies, containing the following particulars in respect of each policy issued by the insurer:
(i) The name and address of the policy holders.
(ii) The date when policy was effected.
(iii) A record of any assignment on the policy.
(b) The Register of claims, containing the following particulars in respect of each claim made:
(i) The date of claims.
(ii) The name and address of claimant.
(iii) The date on which the claim was discharged.
(iv) In the case of claim which is rejected the date of rejection and the ground for rejection.
(c) The register of licensed Insurance Agents. Others subsidiary Accounts books are:
(i) Register of proposal and proposal advance cash book.
(ii) First year’s premium cash book.
(iii) Renewal Premium cash book.
(iv) Agency and Branch cash book.
(v) Petty cash book.
(vi) Claims cash book.
(vii) General cash book, containing summarised entries for the six above-mentioned books.
(viii) Bank cash book.
(ix) Commission Register.
(x) Lapsed and cancelled policies cash book.
(xi) Journal.
(xii) Agency ledger.
(xiii) Policy Loan Ledger.
(xiv) General loan Ledger. and
(xv) Investment Ledger.
6. Difference between Whole life policy and Endowment Policy.
Ans:
| Whole life policy | Endowment Policy |
| Under this policy premiums are paid throughout life and the sum insured becomes payable only at the death of the insured. The policy remains in force throughout the life of the assured and he continues to pay the premium till his death. This is the cheapest policy as the premium till his death. This is the cheapest policy as the premium charged is the lowest under this policy. This is also known as ‘ordinary life policy’. This policy is suitable to persons who want to provide for payment of estate duty, make contribution for charitable purposes and to provide for their families after their death. | It runs only for a limited period or up to a particular age. Under this policy the sum assured becomes payable if the insured reaches a particular age or after the expiry of a fixed period called the endowment period or at the death of the insured whichever is earlier. The premium under this policy is to be paid up to the maturity of the policy, i.e., the time when the policy becomes payable. Premium is naturally a little higher in the case of this policy than the whole life policy. This is a very popular policy these days as it serves the dual purpose of family and ole age pension. |
7. How Do Life Insurance Companies Make Money?
Ans: The life insurance industry is one of the most profitable industries in the world. Every year, insurers report billions in profits on their corporate tax returns. But how exactly do they make all this money? You can find the answer by examining how life insurance works-specifically, how your premium is calculated and where that money goes.
How Life Insurance Works: A life insurance policy is created when you complete an application, are approved, and start paying premiums to the life insurance company. When you die, the life insurance company pays the policy’s death benefit to your beneficiaries. How the insurance company handles those premiums in between their receipt and the payment of a death benefit (if there is payment) is what determines how profitable that insurer will be.
Profiting From Your Premium: The insurance company makes money in primarily two ways: from the profit it makes on premium payments and from investing those premiums.
To figure out what premiums should be, insurance companies employ thousands of actuaries who specialise in advanced statistics and probability. They perform calculations to determine the financial costs of the risks insurance companies face, such as whether an insured person smokes, is obese, or has one or more serious health conditions like cancer or heart disease. They use this information to create and modify the mortality tables that underwriters use to determine the premiums charged to a specific insured person with their specific health conditions.
In this way, the company knows how much it needs to charge its customers in premiums to cover its liabilities and, ideally, make a profit that year.
Reinvesting Your Payments: While insurance companies may profit directly from premiums, the income from investing premium revenues is even more substantial. In fact, investment income represents a significant portion of total revenues and profit-making up $186 billion of revenue for the life/annuity insurance industry in 2020, compared to $143.1 billion from life insurance premiums.
To better understand how this works, consider the cash value component in permanent life insurance policies. Permanent life insurance policies, such as universal and whole life, contain a cash value account within the policy meant to offset the cost of insurance as you age (and insurance costs increase).
A portion of each premium goes into the cash-value account, which is then invested via the insurer’s “general account,” primarily in fixed-income securities like bonds, but also in stocks, real estate holdings, and other types of investments. The insurance company keeps some of the proceeds and pays some of it to its customers. In this way, both insurers and policyholders make money.
The money the general account earns, as well as the type of policy and account expenses, determines how much interest is credited to policyholders’ cash-value accounts.
Lapsed and Term Policies: Although the investment income from cash value policies is a major source of revenue for life insurance companies, lapsed policies and expiring term policies can sometimes be profitable for insurers as well: This is because when an insurance policy lapses, it is no longer a liability for the insurance company the company doesn’t have to pay out a death benefit on that policy. However, policies that lapse also represent a source of lost revenue. Premiums for the policy are no longer being paid and/or, in the case of permanent insurance, the cash value can no longer be invested.
A joint study sponsored by the Society of Actuaries and industry group LIMRA found that the overall annual policy lapse rate was 4.0% between 2009 and 2013, the most recent data available. The lapse rate for term policies was 6.2% annually.
The Bottom Line: The life insurance industry has spent a great deal of time and money analysing mortality rates and the percentage of policies that remain in force until either their terms expire or a death benefit is paid. It knows based on past experience and the current and past work of thousands of actuaries what to charge and how to invest to be one of the most profitable industries worldwide.
8. Discuss the types of bonus shares given by a Life Insurance Company.
Ans: Types of bonuses given by a Life Insurance Company:
(i) Simple Reversionary bonus (SRB): This type of bonus is calculated on the sum assured only. This bonus is declared annually and is accrued to be paid out at the time of a claim or maturity.
(ii) Compound Reversionary bonus (CRB): CRB is calculated as a percentage of the sum assured and all previously accrued bonuses. The bonus of each year is added to the sum assured and the next year’s bonus is calculated on the enhanced amount.
(iii) Terminal Bonus: The terminal bonus, also known as a persistency bonus, is a bonus paid to indicate an overall performance of a participating policy. The terminal bonus is paid at the time of maturity or death of the life assured. This form of bonus may be given after staying in the policy for a predetermined time period and is offered at the discretion of the insurer.
(iv) Interim Bonus: Interim bonus is payable for those policies that mature or result in a death claim in between two bonus declaration dates. While the policy has already accrued the bonus declared at the end of the last financial year, there may be a short period in between the bonus declaration date and the maturity/claim date for which the policy has not received bonus. In such instances, bonus is added on a pro-rata basis using the interim bonus rates declared by the company. An interim bonus ensures that policyholders who claim benefits in the midst of a year will receive credit for keeping the policy in force for that part of the year.
(v) Cash Bonus: The insurance company may decide to give the bonus in cash, i.e. bonus accruing in a year will be paid to the policyholder at the end of the year. This gives the policyholder an opportunity to receive the bonus year on year rather than the usual way of accruing till bonus maturity.
9. Difference between General Balance Sheet and Valuation Balance Sheet.
Ans:
| Basis | Balance Sheet | Valuation Balance Sheet |
| (i) Purpose. | The purpose is to show financial position. | The purpose is to calculate the surplus or deficiency of a Life Insurance Company. |
| (ii) Information about profits. | It provides information as to profitability and financial position of the firm. | It provides information about net liability and estimated surplus or deficiency. |
| (iii) Statement or Account. | Balance Sheet is not an account but only a statement of assets & liabilities. | Though termed as Valuation Balance sheet, it is basically an account. |
| (iv) Equality. | Total of assets side must be equal to the total liabilities side. | Valuation Balance Sheet shows a balance which is surplus or Deficiency of the Life Insurance company. |
| (v) By whom it is prepared. | It is prepared in prescribed format by every firm and company. | It is prepared by a Life Insurance Company. |
| (vi) Nature. | Balance is historical in nature. | Net liability in the valuation balance sheet is calculated on the basis of future liability and premiums. |
10. State the procedure of ascertaining Profit of a life insurance company and distribution of such profits?
Ans: By preparing the following profit & Loss A/C life Insurance Company determines its profit and also shows the distribution of such profits.
Profit & Loss account for the year ended 31st March Loan
| Particulars | Schedule | Current year | Previous year |
| Amounts transferred from/to the policy holders accounts (Technical Account) Income from Investment (a) Interest Dividend & rent-gross. (b) Profit on sale/redemption of investments. (c) Loss on sale/redemption of investments Other Income (to be specified) | |||
| Total (A) | |||
| Expenses other than those directly related to the insurance business. Bad debt written off Provisions (other than taxation) (a) For diminution in the value of investment (net) (b) Provision for doubtful debt (c) Others (to be specified) | |||
| Total (B) | |||
| Profit (Loss) before tax Provision for taxation Profit/Loss after tax Appropriation. (a) Balance at the beginning of the year. (b) Interim dividends paid a during the year. (c) Proposed final dividend. (d) Dividends distribution (e) Transfer to reserve/other A/cs) Profits carried forward to balance sheet. |
11. Give the Pro-form of Balance sheet of a Life Insurance Company.
Ans: Balance sheet as on 31st March 20…
| Particulars | Schedule | Current year | Previous year |
| Source of funds: | |||
| Share holders fund. | |||
| Share capital | 5 | ||
| Reserves and Surplus | 6 | ||
| (Credit/Debit) fair value change A/C | |||
| Sub-Total | |||
| Borrowings | |||
| Policy holder funds | 7 | ||
| (Credit/Debit) fair value change A/C | |||
| Policy liabilities. | |||
| Insurance Reserves. | |||
| provision for linked | |||
| Liabilities | |||
| Sub Total | |||
| Fund for future operation | |||
| Total | |||
| Application of fund: | |||
| Investments | 8 | ||
| Shareholders | 8A | ||
| Policy holders | 8B | ||
| Assets held to cover Linked Liabilities. | 9 | ||
| Loan | 10 | ||
| Fixed Assets | |||
| Current Assets | 11 | ||
| Cash and Bank balance. | 12 | ||
| Advance and other Assets. | |||
| Sub Total (A) | |||
| Current liabilities | 13 | ||
| provisions. | 14 | ||
| Sub Total (B) | |||
| Net current Assets C = A – B | |||
| Miscellaneous expenditure (to the Extent but written off or adjusted) | |||
| Debit balance in profit of Loss | |||
| Account (Share holder A/C) (each headings are to be showed separately) |
12. Explain with the accounting treatment of the Revenue Account of a Life Insurance Company?
Ans: Revenue Account for the year ended 31st March 20..
| Particular | Schedule | Current year | Previous year |
| Premiums earned – Net (a) Premium. (b) Reinsurance ceded. (c) Reinsurance accepted. | 1 | ||
| Income from Investments: (a) Interest, Dividend & Rent-Gross. (b) Profit on sale/redemption of investment. (c) Loss on sale/redemption of investment. (d) Transfer/Gain on revaluation/ Change in fair value other income (to be specified) | |||
| Total (A) | |||
| Commission Operating expenses related to Insurance Business provision for doubtful debts Bad debts written off provision for tax (a) For diminution in the value of investments (Net) (b) Others (to be specified) | 2 3 | ||
| Total (B) | |||
| Benefit paid (Net) Interim Bonuses paid. Changes in valuation of liabilities in respect of life policies. (a) Gross (b) Amount Ceded in Reinsurance. or Amount accepted in Re-insurance. | 4 | ||
| Total (C) | |||
| Surplus/Debit = A-B-C Appropriations: Transfer to shareholders Account Transfer to other Reserves (to be specified) Balance being funds for future Appropriation. | |||
| Total (D) |
13. From the following particulars, you are required to prepare the fire Revenue Account of United India Insurance Company, for the year ended 31st March 2000.
| Bonus in reduction of premiums | Rs. 15,000 |
| Additional provision for unexpired risk | Rs. 40,000 |
| Provision for unexpired risk | Rs. 3,90,000 |
| Expenses of Management | Rs. 2,80,000 |
| Commission on Reinsurance ceded | Rs. 12,000 |
| Commission on Reinsurance accepted | Rs. 6000 |
| Claims intimated but not accepted on | Rs. 8000 |
| Commission on | Rs. 2,20,000 |
| Reinsurance premium | Rs. 1,80,000 |
| Premium received | Rs. 10,60,000 |
| Claims intimated and accepted but not paid | Rs. 65,000 |
| Claims outstanding 1.4.1999 | Rs. 42,000 |
| Claims paid | Rs. 4,20,000 |
you have been asked by the management to provide for additional reserve for unexpired risk at 1% of the net premium in addition to the opening balance.
Soln:
United India Insurance Company
Fire Revenue Account for the year
ended 31st March 2000.
| Particular | Scheduled | Rs. |
| Premium earned (net) Total(A) | 1 | 8,28,550 |
| 8,28,550 | ||
| Claim Insured(net) Commission Operating Expenses relating to Insurance business. Bonus in reduction of premium Total(B) | 2 3 4 | 4,51,000 2,14,000 2,80,000 15,000 |
| 9,60,000 | ||
| Loss from fire Insurance Business (A – B) Schedule 1.Premium Earned: Premium Less: Reinsurance premium Add: Bonus in reduction of premiumLess: Adjustment for increase in unexpired risks: Reserve for unexpired Risk at theend of the year 50% of Rs. 8,95,000 =4,47,500 + 4,40,000 + 1% of 8,95,000 i.e.8950 = Less: Reserve for unexpired Risks at the beginning of the year = 3,90,000+40,000 = | 10,60,000 1,80,000 | 1,31,450 |
| 8,80,0015,000496450 4,30,000 | 8,95,000 66,450 | |
| 8,28,550 | ||
| Schedule 2. Claim Insured: Claims paid Add: Claims intimated but not accepted on 31.3.2000 Add: Claims intimated and accepted but not paid. Less: Claims outstanding on 1.4.1999 | 4,20,0008000 65,000 | |
| 4,93,000 42,000 | ||
| 4,51,000 | ||
| Schedule 3. Commission: Commission on direct business Commission on Reinsurance accepted Less: Commission on Reinsurance ceded Scheduled 4. Operating Expenses: Expenses of Management | 2,20,000 | |
| 6000 | ||
| 2,26,000 | ||
| 12000 | ||
| 2,14,000 | ||
| 2,80,000 |
14. From the following figures appearing in the books Fire Insurance division of a General Insurance Company, show the amount of claims as it would appear as the Revenue Account for the year ended 31st March 2005.
| Direct business | Reinsurance | |
| Claims paid during the year Claims payable 1st April 2004 31st March 2005 Claims Received Claims Receivable 1st April 31st March Expenses of Management | 46,70,000 7,63,000 8,12,000 — — — — | 7,80,000 87,000 53,000 2,30,000 65,000 1,13,000 2,30,000 |
(includes Rs.35,000 surveyor’s fee and Rs.45,000 Legal expenses for settlement of claims)
Soln:
General Insurance Company Fire Revenue Account For the year ended 31st March 2005
| Particular | Schedule | in lakh |
| Claims Incurred | 2 | 51.87 |
Schedule 2. Claims Incurred
| To claims less Reinsurance | 52.20 7,5259.72 | |
| Paid during the year Add: Outstanding claims at the end of the year | ||
| Less: Outstanding claims at the beginning of the year. | 7.85 | 51.87 |
| Working Notes: 1. Claims paid during the year Direct Business Reinsurance | 46.70 7.00 | |
| 53.70 | ||
| Add: Surveyor’s fee Legal expenses Less: Claims received from re-insurance. | .35 .45 | .8054.50 |
| 2.30 | ||
| 52.20 | ||
| 2. Claims outstanding on 31st March 2005 Direct BusinessReinsurance Less: Claims receivable from Reinsurance | 8.12 .53 | 8.651.13 |
| 7.52 | ||
| 3. Claims outstanding on 31st March 2004 Direct Business Reinsurance Less: Claims receivable from reinsurers | 7.63.87 | 8.5065 |
| 7.85 |
15. From the following particulars prepare a Fire Revenue Account of the Purbanchal Insurance for the year 31st December, 2006.
| Rs. | |
| Reserves for unexpired risk on January 1.2006 | 2,56,000 |
| Additional reserve on January 1,2006 | 59,000 |
| Claims paid | 3,25,000 |
| Management expenses | 1,41,200 |
| Premiums | 5,05,000 |
| Interest and Dividend | 91,500 |
| Reinsurance premium | 45,000 |
| Income tax on interest and dividend | 3,500 |
| Profit on sale of Investment | 10,000 |
| Legal charges regarding claims | 7,750 |
| Reinsurance recoveries. | 13,500 |
| Commission on Direct business Outstanding claims | 55,500 |
| On 31st December 2006 | 35,000 |
| On 31st December 2005 | 47,500 |
The Company calculates it Reserve for unexpired risks at 50% of the net premium each year.
Soln:
| Particulars | Schedule | Amount (Rs.000) |
| Premium earned (Net) Profit on sale of Investment Interest, Dividend and Rent-Gross | 1 | 4,86,000 10,000 91,500 |
| Total(A) | 5,87,500 | |
| Claims incurred Commission Operating expenses Income tax on interest and dividend Profit from fire Insurance Business (A – B) | 2 3 4 | 3,06,750 55,500 1,41,250 3500 |
| 5,07,000 | ||
| 80,500 |
Schedule 1. Premium Earned (Net)
| Premiums Less: Reinsurance Premium Add: Adjustment for decrease in Reserve for unexpired risks | 5,05,000 45,000 | |
| 4.60,00026,000 | ||
| 4,86,000 |
Schedule 2. Claims incurred
| Claims paid Add: Legal charges regarding claims Less: Reinsurance recoveries Add: Outstanding as on 31.12.06 Less: Outstanding as on 31.12.05 | 3,25,000 7,750 | |
| 3,32,75013,500 | ||
| 3,19,25035,000 | ||
| 3,54,2504,500 | ||
| 3,06,750 |
Schedule 3. Commission
| Commission | 55,500 |
Schedule 4. Operating expense
| Management expenses Working note: Charge in provision 50% of net premium i.e. 4,60,000 = Add Additional Reserve Less Old provision (2,56,000 + 59,000) | 1,41,250 2,30,000 59,0002,89,0003,15,00026,000 |
16. The Life Insurance Corporation prepared its Revenue Account for the year ended 31st March 1996 and ascertained its Life Insurance Fund to be Rs. 56,70,000. It was found later that the following had been omitted from the accounts.
(a) Interest accrued on investment Rs.78,000 income tax liable to be deducted estimated at Rs.21,000.
(b) Outstanding premium Rs.65,600
(c) Bonus utilised for reduction of premium Rs. 13,500.
(d) Claims intimated but not net admitted Rs.34,800.
(e) Claims covered under reinsurance Rs.13,000 What is the true Life Assurance Fund.
Soln:
Statement showing Recomputation of Life fund.
| Life Assurance Fund Add: Outstanding premium Premium in utilisation bonus Interest accrued on investment Less: Income tax Claim covered under reinsurance. Less: Claims intimated but not yet admitted Bonus utilised in reduction of premium | 78,00021,000 | 56,70,000 65,600 13,500 57,00013,000 |
| 58,19,100 | ||
| 34,800 13,500 | 48,300 | |
| 57,70,800 |
17. What is ‘life insurance’? What are the statutory and subsidiary books maintained by a Life Insurance Company?
Ans: Life Insurance can be defined as a contract between an insurance policy holder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person or after a set period. Here, at ICICI Prudential Life Insurance, you pay premiums for a specific term and in return, we provide you with a Life Cover. This Life Cover secures your loved ones’ future by paying a lump sum amount in case of an unfortunate event. In some policies, you are paid an amount called Maturity Benefit at the end of the policy term.
According to the Companies Act, a company has to maintain several types of Books and Registers. Books are often classified as Statutory Books and Statistical Books. Statistical Books refer to Books of Account and such other Record Books like an Inventory. Statutory Books are those which are necessary to observe legal forma-lities of a company including Registers. It is the duty of the Company Secretary to prepare and maintain the Statutory Books. Generally the Statutory Books (includ- ing Registers) are:
(1) Register of Members.
(2) Index of Members.
(3) Register of Direc-tors.
(4) Register of Debenture-holders.
(5) Register of Mortgages and Charges.
(6) Register of Directors’ Shareholdings.
(7) Register of Con-tracts in which Directors is interested.
(8) Minute Books:
(a) Of Direc-tors’ Meetings.
(b) Of Members’ Meetings.
(c) Of Different Commit-tees’ Meetings, etc..
(9) A File of Annual Returns.
(10) Register of Fixed Deposits.
(11) Register of Company’s Investments in companies in the same group, etc. Besides these, there shall be sets of Books of Account.
Subsidiary Books are the books that record the transactions which are similar in nature in an orderly manner. They are also known as special journals or Daybooks. In big business institutions, it is not easy to record all the transactions in one journal and post them into various accounts. So, for the easy and accurate recording of all the transactions, the journal is subdivided into many subsidiary books. For every type of transaction, there is a separate book. The 8 Subsidiary books are as follows: Cash Book, Purchase Book, Sales Book, Purchase Return Book, Sales Return Book, Bills Receivable Book, Bills Payable Books, Journal Proper.
