Advance Financial Accounting Unit 3 Accounts of General Insurance Companies, College and University Answer Bank for BA, B.com, B.sc, and Post Graduate Notes and Guide Available here, Advance Financial Accounting Unit 3 Accounts of General Insurance Companies to each Unit are provided in the list of UG-CBCS Central University & State University Syllabus so that you can easily browse through different College and University Guide and Notes here. Advance Financial Accounting Unit 3 Accounts of General Insurance Companies can be of great value to excel in the examination.
Advance Financial Accounting Unit 3 Accounts of General Insurance Companies
Advance Financial Accounting Unit 3 Accounts of General Insurance Companies Notes cover all the exercise questions in UGC Syllabus. Advance Financial Accounting Unit 3 Accounts of General Insurance Companies provided here ensures a smooth and easy understanding of all the concepts. Understand the concepts behind every Unit and score well in the board exams.
Accounts of General Insurance Companies
ADVANCE FINANCIAL ACCOUNTING
| VERY SHORT TYPES QUESTION & ANSWERS |
1. State whether the following statements are True or False:
(a) General insurance includes all types of insurance.
Ans: False.
(b) Annuity is an income for the insurance company.
Ans: False.
(c) Commission on reinsurance accepted is a income for the insurance company.
Ans: False.
(d) Form A-BS relates to the Revenue Account of General Insurance business.
Ans: False.
2. Fill in the blanks with suitable words:
(a) Final accounts of the insurance companies are prepared accouraging to the provisions of the insurance Acts ___________.
Ans: 1938
(b) In case of Marine Insurance, the provision against unexpired risk is maintained at __________ of net premium.
Ans: 100%.
(c) ___________ is the document containing the terms of contract of insurance between the insurer and insured.
Ans: Policy.
3. What is insurance?
Ans: Insurance is a form of contract under which one party agrees in return of a consideration to pay an agreed amount of money to another party to compensate for a loss, damage or some uncertain event.
| SHORT TYPE QUESTIONS & ANSWERS |
1. What are the types of Insurance?
Ans: There are two types of insurance i.e., Life insurance and General Insurance.
Life Insurance: Under this type of insurance the corporation guarantees to pay a certain sum of money to the policy holder on reaching a certain age or on his death whichever is earlier. Life insurance has an element both of protection and investment.
General Insurance: It includes all other types of insurance except life insurance, e.g. Fire, Marine, Accident, Theft etc. Under this type of The insurance, the insurer undertakes to indemnify the loss suffered by the insured on happening of a certain event in consideration for fixed premium.
2. What is the Insurance Regulatory and Development Authority (IRDA)?
Ans: In order to regulate the insurance business, the government set up in 1996, the Insurance Regulatory Authority (IRA). Now this authority is known as the Insurance Regulatory and Development Authority. In 2002, the authority came with regulations for the preparation of the financial statement of insurance companies.
3. What are the business done by general insurance company?
Ans: General insurance companies may be doing more than one business e.g. fire, marine etc.
Fire Insurance: In this insurance, the company undertakes to compensate loss caused by fire in consideration of premium received.
Marine insurance: In this insurance, in consideration of premium received, the company undertakes to compensate loss caused by marine risks as per terms of insurance.
4. What are Final accounts consist in a General Insurance Company?
Ans: The final accounts of a general insurance company consist of
(a) Revenue Account.
(b) P&L A/c. and
(c) Balance Sheet.
5. Write a note on Reserve for Unexpired Risk?
Ans: Policies in general insurance are only for one year. These can be taken by the insured at any time during the year. Premium on such policies is always paid in advance. There may be such policies which are issued during the year but risks covered remain unexpired at the accounting year. Hence a reserve for unexpired risk is made at 50% of the net premium in case of fire insurance and 100% of the net premium in marine insurance is made. Opening balance for reserve for unexpired risk is added to the premium and closing balance of reserve for unexpired risk is deducted from the premium. The net premium should be shown in revenue account. The closing balance of reserve for unexpired risk should be shown in the balance sheet under the head provisions. At present reserve for unexpired risk will be created as follows:
(a) 50% of net premium for fire insurance, marine cargo business and miscellaneous insurances.
(b) 100% of net premium for marine hull business. In addition to the above reserve, a company can maintain more reserves. Then it is called Additional Reserve.
| LONG TYPE QUESTIONS & ANSWERS |
1. Write a critical note on preparation of Financial Statements of insurance companies in India.
Ans: A General insurance company is required to prepare the following Financial Statements.
(a) Revenue Account in Form B-RA (Policy holders Rs. Account).
(b) Profit and Loss Accounts in Form B-PL(Shareholders Account).
(c) Balance Sheet in Form B-BS.
Provided that an insurer shall prepare Revenue Accounts separately for fire, marine, and miscellaneous insurance business and Separate Schedules shall be prepared for marine cargo, marine other than marine.cargo and the following classes of miscellaneous insurance and accordingly applications of AS 17-Segment reporting-shall stand modified
(a) Motor.
(b) Workman Rs Compensation Employers Liability.
(c) Public/product Liability.
(d) Engineering.
(e) Aviation.
(f) Personal Accident.
(g) Health insurance.
(h) & Others.
Revenue Account: A General Insurance Company is required to prepare a separate Revenue Account for each department such as for fire business, A Fire Revenue Account for marine business, a Marine Revenue Account, etc. for ascertaining the operating profit or loss of each department. Revenue Account of a general insurance company has four schedules as under
Schedule 1: for Premium.
Schedule 2: for Claims.
Schedule 3: for Commission. and
Schedule 4: for Operating Expenses relating to Insurance Business.
Besides, Profit and Loss on sale of Investments, Interest, Dividend and Rents and any other incomes connected to specific business will be shown separately in respective Revenue Account.
Profit and Loss Account: A General Insurance Company prepares a Profit and Loss Account in Form PL prescribed by IRDA. The operating profits/losses as disclosed by different Revenue Accounts are brought down. Other incomes not related to fire, marine or other insurance business are shown in this account. It also shows various provisions and expenses not related to any specific insurance business. The excess of income over expenditure and provisions represents profit before tax and the vice versa is the loss. From the profit, tax is deducted and the resultant figure is known as profit after tax. Profit after tax is appropriated as dividend and reserves and the balance is carried forward to the Balance Sheet.
2. What do you mean by general companies? Discuss the features of general Insurance companies.
Ans: Insurance contracts that do not come under the ambit of life insurance are called general insurance. The different forms of general insurance are fire, marine, motor, accident and other miscellaneous non-life insurance. The tangible assets are susceptible to damages and a need to protect the economic value of the assets is needed. For this purpose, general insurance products are bought as they provide protection against unforeseeable contingencies like damage and loss of the asset. Like life insurance, general insurance products come at a price in the form of a premium.
Features of General Insurance Companies:
(i) General Insurance policy is a contract of indemnity in which the insurer agrees to reimburse only the actual loss suffered subject to the average clause.
(ii) General Insurance contract is for a short period usually a year.
(iii) The subject matter is any physical property, assets, ship or cargo etc.
(iv) General insurance has only the element of protection and not the element of investment.
(v) Insurable interest on the subject matter must be present both at the time of effecting policy as well as when the claim falls due.
(vi) General insurance is a contract of indemnity. The insured can claim only the actual amount of loss from the insurer.
(vii) General insurance does not have any surrender value or paid up value.
(viii) In case of general insurance, business profit is determined after making provision for unexpired risks.
(ix) Loss is measurable in case of general insurance.
3. Write short notes on:
(i) Difference between insurance and wagering agreements.
Ans: Insurance contracts are not wagering or gambling contracts, such as a betting on the turn of a card or on horse racing etc., In a wagering contract, both parties, create a risk and want to make money the happening or otherwise of an event, while in the case of insurance, risk already exists and the purpose of contract is only the transfer the risk. Though there is uncertainty and payments are made on the happening of the event in both the cases. , really is it not so. the following are the differences between these two contracts.
(a) Purpose: The object of insurance is to protect the insured against loses on the happening of some uncertain future events. the object of a wager is a to make profit by winning.
(b) Risk: Insurance is meant for protection, if the risk, which is already there, materialises. But the risk is oriented in wagering contracts.
(ii) Re – Insurance.
Ans: In general insurance there are risks which, because of their magnitude or nature, one insurance company cannot afford to cover, e.g. aviation insurance. Generally, in such cases, an insurance company insures the whole risk itself and lays off the amount it has accepted to other insurance or reinsurance companies, retaining only that much risks which it can absorb. A reinsurance transaction may thus be defined as an agreement between a ‘ceding company’ and a ‘re-insurer’ whereby the former agrees to ‘cede’ and the latter agrees to accept a certain specified share of risk or liability upon terms as set out in the agreement.
A ‘ceding company’ is the original insurance company which has accepted the risk and has agreed to ‘cede’ or pass on that risk to another insurance company or a reinsurance company. It may however be emphasised that the original insured does not acquire any right under a reinsurance contact. In the event of loss, therefore, the insured’s claim for full amount is against the original insurer.In other words, if an insurer is not willing to bear the whole of the risk, it reinsures itself. Some risk is retained with some other insurer. This is called reinsurance. Both re-insurer and original insurer share the premium and risk in the same proportion and decided by them earlier.
(iii) Difference between reinsurance and double insurance.
Ans: The concept of double insurance differs from the concept of reinsurance the following respects:
(a) Meaning: The reinsurance business is entered into by the original insurer with the order of insurers. But in double insurance,but the insured gets the same subject matter insured with more than one insurer or under more than one policy with the same insurer.
(b) Filing Claim: In reinsurance, the insured cannot be claim any part of the his loss from the insurer. But in the double insurance the insured can claims only his actual loss from each of the insurers up to the amount insured with them.
(C) Contribution: In reinsurance, the reinsured will claim a part of the loss proportionate to the risk reinsured by the him with the reinsurers. But in double insurance, each insurer is liable to contributions on pro-rata basis towards the loss suffered by the insured.
(iv) Surrender Value.
Ans: The term surrender value indicates the value that we receive from the insurance issuer after we surrender the policy before maturity. Surrender, here, means termination or cancellation of the life policy or returning the policy to the insurance company before the stipulated time. The policy no longer exists after the company clears off the payment to the policyholder. There can be a number of reasons behind surrendering our policy. One of the most common reasons is inability to pay the premiums. The policyholders often feel they have chewed more than they can swallow. Surrendering our policy means we will not have to pay premiums any further. When we terminate a policy, the company pays us certain amount because we have paid premiums in the previous years of which a portion has been used to cover risk, and another portion has been used as an investment. The investment portion with its increased value will be returned to us after deducting some termination charges. We might even get some bonus as well. This amount is known as the surrender value. However, keep in mind that the surrender value factor plays a key role in minimising the bonus.
Formula to calculate:
Surrender Value = [{(Number of premiums paid/number of payable premiums) x Assured Sum of money} + total bonuses] x Surrender value factor.
(v) Double insurance.
Ans: Double insurance is the insuring of an individual, dependent, or personal property by two or more insurance companies. Such dual insurance allows those with coverage to claim the full amount from the policies; however the total claim cannot exceed the actual loss or cost associated with the underwritten subject of the policies. Insurance companies are law bound to honour double insurance policies, but the recipient of such policies must satisfy certain eligibility requirements. Underwriters of double insurance policies have the ability to reject or appeal certain claims based on deception or unjust enrichment. Consequently, it is important that individuals insurable under double insurance have an understanding of the independent insurance policies that comprise their dual coverage and know the process for claims and payouts.
4. What do you mean by Reserve for unexpired Risk? How and why is it created in general insurance?
Ans: A General insurance Company issues policies throughout the accounting year and also receives premium against such policies throughout the year. The risk of the insurance company on the policies which expire during the year, also expires along with the expiry of the policy.
Insurance close their accounts on a particular date, i.e., on 31st March each year. But many policies extend into the following year during which the risk of the insurance company continues. Therefore, on the closing date, there is unexpired liability of the insurer under such policies which may occur during the remaining term of the policy falling in the next year. To provide for such unexpired risks a reserve is created by the insurance company. Such Reserve is termed as Reserve for Unexpired Risk. This is calculated as a percentage of the premiums net of reinsurances, received or receivable during the year. The rate at which such reserve is required to be created has been prescribed the IRDA. Reserve for Unexpired Risk is shown as deduction from Premium income in Schedule 1.
Rates of Reserve for Unexpired Risk: Schedule Il of the Insurance Regulatory and Development Authority (Assets, Liabilities and Solvency margin of Insurance) Regulation, 2000 lays down that the Reserve for Unexpired Risks, shall be in respect of
(a) Fire Insurance 50%.
(b) Miscellaneous Insurance Business 50%.
(c) Marine Business other than Marine Hull Business 50%. and
(d) Marine Hull Business 100%.
The prescribed percentages are calculated on Premium, net of reinsurances, received or receivable during the preceding twelve months.
5. Write the treatment of various items of income and expenses of the General Insurance business.
Ans: (a) Premium: Premium from direct business is shown in the Revenue Account, Schedule 1: Premiums Earned (Net), Reinsurance premium paid (ceded) will be shown as deduction from Premium from direct business and premium on Reinsurance accepted will be added to Premium from direct business in Schedule 1. The balance amount is termed as Net Premium. The change in reserve for unexpired risk should be adjusted with the amount of Net Premium.
(b) Profit/Loss on sale/redemption of Investments: If there is any profit/loss on sale/redemption of investments of policy holders fund, then it should be shown in the Revenue Account. If the profit/loss on sale/ redemption of investments is out of shareholders fund, it will be shown in the Profit and Loss Account.
(c) Interest, Dividend & Rent-Gross: The Gross amount of interest, dividends & rent are shown on the Revenue Account, if these incomes are generated from the Investment of Funds generated from specific business. If these incomes are generated from the Investment of Shareholders Funds, then these incomes are shown in the profit and Loss Account.
(d) Any other income/loss: If there is any other income loss not covered in (2) and (3), these should be stated under the head others (to be specified).
(e) Claims Incurred (Net): The number of claims paid on direct business should be shown separately in Schedule 2: Claims Incurred (Net) in the Revenue Account. The amount of claim in reinsurance accepted will be added and the amount of claim in reinsurance ceded (claims covered under reinsurance) will be deducted. Expenses such as surveyor tees, legal and other expenses incurred in connection with the claim will also be added. The amount or Claims incurred as ascertained above should be adjusted for estimated salvage value if there is a sufficient certainty of its realisation.
(f) Operating Expenses related to insurance business: This will be shown in Schedule 4. Revenue Account Operating Expenses includes expenses like employees remuneration & welfare benefits, travel, conveyance and vehicle running expenses, training expenses, rents, rates & taxes, repairs, printing & stationery, communication expenses, legal & professional charges, medical, fees, auditors fees, advertisement and publicity, Interest & bank charges, Depreciation, etc.
(g) Income Tax on Interest, Dividend etc. (Tax Deducted at source): The amount of income tax deducted at source on interest, dividend etc. should be included in Advance Taxes paid and Taxes Deducted at Source to be shown in the balance sheet.
6. Write a note on Bonus in reduction of premium.
Ans: In all the cases of general insurance the policy is always taken for one year and it is to be renewed after the expiry of the policy, Whether the policy is renewed with the same company, or a fresh policy is taken with some other company, it is a standing practice that the company usually grants a reduction in premium at the prescribed rate if the insured has not made any claim. This rate of reduction increases every year for usually three years if the insured does not made any claim. This rate of reduction increase every year for usually three years if the isurred does not make any claim continuously year after year. For example, the general Insurance companies in India allow the following rates of reduction for a motor cycle, 1st year 15%, 2nd year 25%, 3rd year 30%. This reduction is called bonus in reduction of premium. In fact, this transaction should be divided into two parts-first, the total premium (without any reduction) should be assumed to be received and then reduction granted should be assumed to be paid separately. Thus, total premium (without reduction) should be treated as income and bonus which is subtracted should be treated as an expense. Thus – If net premium received is 126.
Bonus in reduction of premium is 14. The revenue account on the credit side will show 140 (126+14) as income and on the debit side 14 as an expense. The journal entry is:
Bonus in reduction of premium Account …………….. Dr
To premium Account
7. General Instruction in preparation of Final Accounts of General Insurance Companies.
Or
Features of accounts of general insurance companies.
Ans: Following are the important points which should be kept in mind while preparing the final accounts of general insurance companies:
(i) General insurance company may be doing more than one business, e.g., fire, marine accidental etc. For each type of business a separate Revenue Account is to be prepared in the prescribed from B-RA.
(ii) Reserve for Unexpired Risks: The need for unexpired risks reserve arises from the fact that all policies are renewed annually except in specific cases where short period policies are issued. Since the insurers close their accounts on a particular date, not all risks under policies expire on that date. Many policies normally extend beyond this date into the following year during which risks continue. In other words, at the closing date, there is unexpired liability under various policies, which may occur during the remaining term of the policy beyond the year end.
(iii) A combined Balance Sheet is also prepared in the prescribed form for all business on the closing date of the year.
(iv) Commission on policies affected through insurance agents cannot exceed 5% of the premium in respect of fire and marine business and 10% in case of miscellaneous business. In case of policies are effected through a principal agent, the maximum limits are 20% for fire and marine policies and 15% in case of miscellaneous insurance less any commission payable to an insurance agent in respect of the policy concerned.
(v) Claims paid must include all expenses directly incurred in setting claims such as legal expenses, medical expenses, surveyor’s expanses etc.
(vi) No claim of Rs. 20,000 or more can be paid, except as the Controller of Insurance may otherwise direct, unless there is a report in respect thereof from an approved surveyor or loss assessor (licensed under the Insurance Act.)
(vii) An insurer carrying on general insurance business, after the commencement of Regulations given by the Insurance Regulatory and Development Authority on 30th March, 2003, shall comply with the requirements of Schedule B for the preparation of financial statements, management report and auditor’s report. Schedule B as given by IRDA is reproduced on.
8. Write short note on the following:
(i) Bonus.
Ans: Bonus: In the case of life policies with profits, policy holders are given the right to participate in the profits of the business. After nationalisation, policyholders are given 95% of profits of L.I.C. by way of bonus. Bonus can be paid in cash, adjusted against the future premiums due from the policy holders or it can be paid on the maturity of the policy, together with the policy amount. Bonus paid in the end along with the policy amount is called Reversionary Bonus.
(ii) Reinsurance.
Ans: Reinsurance: Sometimes the insurer considers a particular risk too much for his capacity and may re-insure a part of the risk with some other insurer. Such an arrangement between two insurers is referred to as reinsurance. In such a case the first insurer cannot retain all the premium on the policy for himself. Depending on the share of risk undertaken by the second insurer, proportionate premium must be ceded by the first insurer. Likewise, if such a policy matures, the claim will have to be shared by both the insurers in the agreed ratio. These adjustments will have to be shown in the accounts of both the insurers. In the accounts of the first insurer amount of claim recovered from the second insurer has to be deducted from the total claim payable by him. Similarly, the premium ceded to the second insurer has to be deducted from the total premium received. In the accounts of the second insurer, claims paid include claims paid on account to Re-insurance and premiums received include premium received on reinsurance business.
(iii) Commission on reinsurance ceded/ accepted.
Ans: Commission on reinsurance ceded/accepted: The business of the company is fetched through its agents who are paid commission according to the amount of business they are getting for the company. When company gets reinsurance business it has to pay commission to some other company. This commision is called ‘commision on reinsurance accepted’ and is shown as an expense in the revenue account. When a company passes on a part of business to some other company then this company (which gives business) gets commision from the company to whom such business is given. This commission is called ‘commision on reinsurance ceded’ and is a gain to the company surrendering the business. It appears on the credit side of the revenue account.
9. How to determine profits in case of general insurance companies.
Ans: Ascertainment of profit under General Insurance Business. General insurance policies are normally issued for short terms renewable every year. It is quite possible that on the accounting date, some of the contracts are still alive and hence represent unexpired risk. A suitable provision is made for that unexpired risk on a generalised basis as it is impractical to create it for specific policies. Sometimes an additional provision is also created. The total of reserve for unexpired risk and additional risk is collectively termed as ‘Respective Fund’ which may be fire fund, marine fund, motor vehicle fund, etc. The revenue account starts and ends with the respective value of the fund besides recording normal revenue and expenditure. The difference of the account is called profits or loss and is transferred to Profit and Loss Account.
10. Explain Reserve for unexpired risk and its significance at the time of calculating profits.
Ans: Insurance Company, close their accounts on 31st March but not all risks under different policies expire on that date. Many policies extend into the following accounting year during which the risk continues. Therefore on the closing date there is an unexpired liability under various policies which may occur during the remaining term of the policy beyond the year and therefore, a provision for unexpired risks is made. This reserve is based on the Net Premium income earned by the insurance company during the year.
The effort involved in calculating the unexpired portion of premium under each policy is very time consuming. Therefore, a simple formula to derive a percentage of premium income to be allocated to reserve for unexpired risks is adopted.
According to the requirements of the Insurance Act, it is sufficient if the provision is made for unexpired risks at 50 per cent for Fire, Marine Cargo and Miscellaneous business except for Marine Hull which has to be 100 per cent. It may be mentioned that the insurance companies are governed by the provisions of Section 44 of the Income-tax Act, 1961. In this regard, Rule 5 of the First Schedule to the Income-tax Rules – computation of Profit & Loss of General Insurance Business – provides for creation of a reserve for unexpired risks as prescribed under Rule 6E of the said Rules. According to this Rule, the insurance companies are allowed a deduction of 50 per cent of net premium income in respect of Fire and Miscellaneous Business and 100 per cent of the net premium income relating to Marine Insurance business. In view of this the reserves are created at the rates allowed under the Income-tax Act.
Additional reserve for unexpired risk:
(i) In a particular year the management may feel that the percentage of premium recommended by the General Insurance Council is not sufficient to meet the unexpired risks. In such a situation they may provide additional reserve. Such additional reserve for unexpired risk will also be debited to the revenue account.
(ii) The balance will be shown in the balance sheet as in the case of normal reserve for unexpired risk, and will be transferred to the credit of next year’s revenue account.
Treatment of reserves for unexpired risk: Reserve for unexpired risk is adjusted with premium earned in schedule – 1 of the Revenue account of a general insurance company. Difference in opening and closing balance of reserve for unexpired risk is calculated and increase in reserves during the year is deducted with premium earned or vice-versa. In the balance sheet, reserve for unexpired risk is shown in schedule – 14 under the head provisions.
11. Show the Revenue Account of general insurance company.
Ans: General insurance company may be doing more than one business fire, marine, accidental, etc. For each type of business, a separate Revenue Account is to be prepared in the prescribed form B-RA. The form of Revenue Account is given below.
FORM B-RA
Name of the Insurer
Registration No. and Date of Registration with the IRDA
Revenue Account for the year ended 31st March, 20 ………….. Policyholders Account
| No. | Particulars | Schedule | Current Year (Rs.000) | Previous Yea (Rs.000) |
| 1 | Premiums Earned (Net) | 1 | ||
| 2. | Others (to be specified) | |||
| 3. | Change in Provisions for unexpired risk | |||
| 4. | Interest, Dividend & Rent-Gross | |||
| Total (A) | ||||
| 1 | Claims Incurred | |||
| 2 | Commision | |||
| 3 | Operating Expenses related to insurance business | 2 | ||
| 4 | Others (to be specified) | 3 | ||
| Total (B) | 4 | |||
| Operating Profit / (Loss) from / fire / Marine. Miscellaneous business (C)=(A-B) Appropriations Transfer to Shareholders Account Transfer to Catastrophe Reserve Transfer to Other Reserves (tobe specified) Total (C) |
SCHEDULES FORMING PART OF FINANCIAL STATEMENTS
SCHEDULE-1 PREMIUM EARNED [NET]
| No. | Particulars | Current Year (Rs.000) | Previous Year (Rs.000) |
| 1 | Premium for direct business written Add: Premium on reinsurance accepted Less: Premium on reinsurance ceded Net Premium Total Premium Earned (Net) |
Note: Reinsurance premiums whether on business cede or accepted are to be bought into account, before deducting commission under the head of reinsurance premiums.
SCHEDULE 2-CLAIMS INCURRED [NET]
| Particulars | Current year (Rs.000) | Previous Year (Rs.000) |
| Claims paid Direct Add: Reinsurance accepted Less: Reinsurance ceded Net claims paid Add: Claims outstanding at the end of the year Less: Claims outstanding at the beginning Total Claims Incurred |
SCHEDULE 3 COMMISSION
| Particulars | Current year (Rs.000) | Previous Year (Rs.000) |
| Commission paid Direct Add: Commission on Reinsurance Accepted Less: Commission on Reinsurance Ceded Net Commission |
Note: The Profit/commission, if any, are to be combined with the Reinsurance accepted or Reinsurance ceded figures.
SCHEDULE 4 – OPERATING EXPENSES RELATED TO INSURANCE BUSINESS
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| 1 | Employees.remuneration & welfare benefits | ||
| 2 | Managerial remuneration | ||
| 3 | Travel, conveyance and vehicle running expenses | ||
| 4 | Rents, rates & taxes | ||
| 5 | Repairs | ||
| 6 | Printing & stationery Communication expenses | ||
| 7 | Legal & Professional charges | ||
| 8 | Medical fees Auditors fees, expenses etc. | ||
| 9 | (a) As auditor | ||
| 10 | (b) As adviser or in any other capacity, in respect of: (j) (i) Taxation matters (ii) Insurance matters (iii) Management services; and (c) In any other capacityAdvertisement and and publicity Interest & bank charges Others (to be specified) Depreciation | ||
| Total |
Note: Items of expenses and income in excess of one percent of the total premiums (less reinsurance) or Rs.500000 whichever is higher, shall be shown as a separate line item.
12. Show the Profit and Loss Account (From B-PL) of General Insurance company.
Ans: The P&L A/c is prepared to calculate the overall profit of the general insurance business. Operating profits (or losses) of fire, marine and miscellaneous insurance are taken in the P&L A/c. income from investments, profit or loss on sale of investments, bad debts, provision for doubtful debts etc. are taken in the P&L A/c.
Form B-
Name of the insurer
Profit and Loss Account for the year ended 31 March, 20….. Shareholders Account (Non-technical Account)
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| 1 | Operating Profit/(Loss) (a) Fire Insurance (b) Marine Insurance (c) Miscellaneous Insurance | ||
| 2 | Income from investments (d) Interest, dividends & rent-Gross (e) Profit on sale/redem-ption of investments Less: Loss on sale of investments | ||
| 3 | Other income (to be specified) Total (A) | ||
| 4 | Provisions (other than taxation) (a) For diminution in the value of investments (net) | ||
| 5 | (b) For Doubtful Debts (c) Others (to be specified) Other Expenses (a) Expenses other than those directly related to the insurance business (b) Bad debts written off (c) Others (to be specified) Total (B) Profit before tax provision for taxation Profit after tax Appropriations (f) Interim dividends paid during the year (g) Proposed final dividend (h) Dividend Distribution Tax (i) Transfer to Reserves or other accounts (to be specified) Balance of Profit/Loss brought forward from last year Balance carried forward to the Balance sheet |
13. Show the Balance sheet FORM B-BS of general insurance company.
Ans: Balance Sheet of Life Insurance Company is prepared in vertical format. The form of Balance Sheet is as follows:
Name of the Insurer
Balance Sheet as at 31st March, 20…..
| No. | Particulars | Schedule | Current year (Rs,000) | Previous Year (Rs.000) |
| Sources of Funds Shareholders Funds: Share Capital Reserves and Surplus Fair Value Change Account Borrowings Total Application of funds Investment Loans Fixed Assets Current Assets Cash and Bank Balances Advances and Other Assets Sub-Total (A) Current Liabilities Provisions Sub-Total (B) Net current Assets (C)=(A)-(B) Miscellaneous Expenditure (to the extent not written off or adjusted) Debit Balance in Profit and Loss Account Total | 5 6 7 8 9 10 11 12 13 14 15 |
SCHEDULE 5 – SHARE CAPITAL
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| 1 | Authorised capital Equity shares of Rs….each | ||
| 2 | Issued Capital Equity shares of Rs…each | ||
| 3 | Subscribed Capital Equity shares of Rs…each | ||
| 4 | Called-up Capital Equity shares of Rs…each Less: Calls unpaid Add: Equity Shares forfeited (Amount originally paid up) Less: Par value of equity shares bought back Less: Preliminary Expenses Expenses including commission or brokerage on underwritting or subscription of shares Total |
Notes:
(a) Particulars of the different classes of capital should be separately stated.
(b) The amount capitalised on account of issue of bonus shares should be disclosed.
(c) In case any part of the capital is held by a holding company, the same should be separately disclosed.
SCHEDULE 6 – RESERVES AND SURPLUS
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| 1 | Capital Reserve | ||
| 2 | Capital Redemption Reserve | ||
| 3 | Securities Premium | ||
| 4 | General Reserves Less: Debit balance in P&L A/c, if any Less: Amount utilised for buy back. | ||
| 5 | Catastrophe Reserve | ||
| 6 | Other Reserves (to be specified) | ||
| 7 | Balance of Profit in P&L A/c | ||
| Total |
Note: Additions to and deductions from the reserves shall be disclosed under each of the specified heads.
SCHEDULE 7 – BORROWINGS
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| 1 | Debentures/Books | ||
| 2 | Banks | ||
| 3 | Financial Institutions | ||
| 4 | Others (to be specified) | ||
| Total |
SCHEDULE 8 – INVESTMENTS
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| Long-term Investments | |||
| 1 | Government securities and Government Guaranteed Bonds including treasury bills | ||
| 2 | Other approved securities | ||
| 3 | Other investments (a) Shares (aa) Equity (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/Bonds (e) Other securities (to be specified) (f) Subsidiaries (g) Investment Properties-Real Estate Investments in Infrastructure and Social sector Other than Approved Investments Short-term Investments Government securities and Government Guaranteed Bonds | ||
| 4 | including treasury bills | ||
| 5 | Other approved securitiesOther investments | ||
| 1 | (a) Shares (aa) Equity | ||
| 2 | (bb) Preference | ||
| 3 | (b) Mutual Funds (c) Derivative Instruments (d) Debentures/Bonds (e) Other securities (to be specified) (f) Subsidiaries (g) Investment Properties – Real Estate Investments in Infrastructure and Social sector Other than Approved Investments | ||
| Total |
SCHEDULE 9 – LOANS
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| 1 | Security-wise Classification Secured (a) On mortgage of property (aa) In India (bb) Outside India (b) On Shares, Bonds, Govt. Securities, etc. (c) Others (to be specified) Unsecured Total Borrower-wise Classification |
SCHEDULE 10 – FIXED ASSETS
SCHEDULE 11 – CASH AND BANK BALANCES
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| 1 | Cash (including cheques, drafts and stamps) | ||
| 2 | Bank Balances (a) Deposit Accounts (aa) Short-term (duewithin 12 months) (bb) Others (b) Current Accounts (c) Others (to be specified) | ||
| 3 | Money at call and short notice (a) With banks (b) With other institutions Others (to be specified) | ||
| 4 | Total Balances with non- scheduled banks in 2 and 3 above. |
SCHEDULE 12 – ADVANCES AND OTHER ASSETS
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| Advances | |||
| 1 | Reserve deposits with ceding companies | ||
| 2 | Application money for investments | ||
| 3 | Prepayments | ||
| 4 | Advances to Directors/Officers | ||
| 5 | Advance tax paid and taxes deducted at source (Net provision for taxation) | ||
| 6 | Others (to be specified) | ||
| Total (A) | |||
| Other Assets | |||
| 1 | Income accrued on investments | ||
| 2 | Outstanding Premiums | ||
| 3 | Agents Balances | ||
| 4 | Foreign Agencies Balances | ||
| 5 | Due from other entities carrying on insurance business (including reinsurers) | ||
| 6 | Due from subsidiaries/holding company | ||
| 7 | Deposit with Reserve Bank of India [Pursuant to section 7 of Insurance Act, 1938] | ||
| 8 | Others (to be specified) Total (B) Total (A+B) |
SCHEDULE 13 – CURRENT LIABILITIES
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| 1 | Agents balances | ||
| 2 | Balances due to other insurance companies deposits held on | ||
| 3 | Reinsurance ceded Premiums received in advance | ||
| 4 | Unallocated premium Sundry creditors | ||
| 5 | Due to subsidiaries / holding companyclaims outstanding | ||
| 6 | Officers/Directors others (to be specified) | ||
| Total |
SCHEDULE 14 – PROVISIONS
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| 1 | Reserve for unexpired risk | ||
| 2 | For taxation (less payments and taxes deducted at source) | ||
| 3 | For proposed dividends | ||
| 4 | For dividend distribution tax | ||
| 5 | Others (to be specified) | ||
| Total |
SCHEDULE 15 – MISCELLANEOUS EXPENDITURE
(To the extent not written off or adjusted)
| No. | Particulars | Current year (Rs,000) | Previous Year (Rs.000) |
| 1 | Discount allowed on issue of shares/debentures | ||
| 2 | Others (to be specified) | ||
| Total |
14. Write short note on Fire Insurance.
Ans: After marine insurance, fire insurance was created. Only those involved in any kind of trade will benefit from marine insurance. People from all walks of life may be affected by the flames. In four days, the Great Fire of London of 1956 burned 13,000 homes. Fire insurance was born as a result of the “Great Fire.” Fire insurance is a contract that indemnifies the insured for losses incurred. This contract does not aid in the control or prevention of fire, but it does pledge to compensate for the damage. Fire insurance is a contract between two parties, namely, the insurer and the insured, under which the insurer agrees to compensate the insured for losses incurred in exchange for the insured paying an amount known as the “Premium.” A fire insurance contract is described as “an arrangement” in which one party, in exchange for a consideration, agrees to indemnify the other party for financial loss sustained as a result of the certain subject matter being damaged or destroyed by fire or other defined perils up to an agreed sum.
15. How general insurance differ from life insurance?
Ans: The difference between life insurance and general insurance can be drawn clearly on the following grounds:
(i) The insurance contract, in which the life risk of an individual is covered, is known as life insurance. As opposed, the insurance, which is not covered under life insurance and includes various types of insurance, i.e. fire, marine, motor, etc. is general insurance.
(ii) Life insurance is nothing but an investment avenue. On the con-trary, general insurance is a contract of indemnity.
(iii) Life insurance is a long-term contract, which runs over a number of years. Conversely, general insurance is a short term contract, which needs to be renewed every year.
(iv) In life insurance, the sum assured is paid, either on the happening of the event or the on the maturity of the term. As against this, in gen-eral insurance, the amount of actual loss is reimbursed, or liability incurred will be repaid on the happening of an uncertain event.
(v) In life insurance, the premium is paid throughout the life of the term. In contrast, in general insurance, one shot payment of premium is made.
16. Difference between Life insurance and General Insurance.
Ans:
| Basis of difference | Life Insurance | General Insurance |
| Subject Matter | The subject matter of insurance is human life. | The subject matter is any physical property, assets, ship or cargo etc. |
| Element | Life Insurance has the elements of protection and investment or both. | General insurance has only the element of protection and not the element of investment. |
| Insurable Interest | Insurable Interest must be present at the time of affecting the policy. | Insurable interest on the subject matter must be present both at the time of effecting policy as well as when the claim falls due. |
| Duration | Life Insurance policy usually exceeds a year and is taken for longer period ranging from 5 to 30 years or whole life. | General insurance policy usually does not exceed a year. |
| Indemnity | Life insurance is not based on the principle of indemnity. | General insurance is a contract of indemnity. The insured can claim only the actual amount of loss from the insurer. |
| Loss measurement | Loss is not measurable. | Loss is measurable. |
| Surrender value or paid up value | Life insurance policy has a surrender value or paid value. | General insurance does not have any surrender value or paid up value. |
| Contingency of risk | There is an element of certainty. | There is an element of uncertainty and there may be no claim. |
