FINAL ACCOUNTS OF LIFE INSURANCE
advertisement
FINAL ACCOUNTS OF LIFE INSURANCE Introduction: Life is full of problems and uncertainties. Attempts are being made to reduce these problems and uncertainties and where possible, to eliminate them. Everyone is exposed to some risk or the other, whatever the precaution taken. Life is prone to accidents and buildings and goods may be destroyed or damaged due to fire, flood or cyclone. Insurance is a way of protecting people and things against such unexpected losses. The primary object of insurance is to substitute certainty for uncertainty as regards the economic cost of loss producing events. Life (Insurance) Assurance: Life Assurance is a contract whereby the insurer, in consideration of a premium, paid either in lumpsum or in periodical installments undertakes to pay an annuity or a certain sum of money, either on the death of the insured or on the expiry of a certain number of years. The amount is paid to the nominee of the insured if the insured dies before the policy matures. The person who agrees to pay an annuity or a certain sum of money (i.e., who indemnifies) is called the Insurer. The person whose life is insured (i.e., the one to whom the money is payable) is called the Assured and the consideration paid periodically or otherwise is called the premium. Life Insurance contract is a contingent contract i.e., the claim becomes payable only when the contingency – death or completion of the stipulated period occurs. Final Accounts – Credit Side Items: 1. Life Assured Fund: The difference between total receipts and total expenditure of a life insurance company is not profit but is a reserve with which the net liability will be compared when ascertained. The name of this reserve is Life Assurance Fund. Life Assurance Fund appears as the first item on the credit side and it is carried forward from the previous year. 2. Premium: It includes the premium received or yet to be received for the relevant year less any premium paid or to be paid on re-insurance plus the bonus in reduction of premium. 3. Considerations for Annuities Granted: Any lumpsum payment received in lieu of granting annuity is called consideration for annuities granted. Annuity is an annual payment made by an insurance company to any person, in consideration for a lump sum of money received in the beginning. The payment is made by the insurance company as long as one lives. Final Accounts – Debit Side Items: 1. Claims: Claim is the amount payable by the insurance company to the insured, or his nominee on the policy. In the case of an endowment policy the claim arises either on the death or on the policy holder reaching a stipulated age, whichever is earlier. In the case of a whole life policy the amount is payable only on the death of the policy holder. Claim on the death of a policy holder is called Claim of Death. Claim on the policy holder reaching a stipulated age is called Claim by Maturity or Survivance. Claims include reversionary bonus and interim bonus. 2. Surrender Value: It is the amount which a policy holder can get immediately in cash from the insurance company if he stops paying the premium and claims the amount paid till then. Surrender value is the present cash value of the policy. 3. Bonus: It is the share of profit which a policy holder gets from the life insurance company. Bonus in cash is, as the name suggests, the amount of bonus payable in cash to the holder of a ‘With Profit Policy’. Bonus in cash is payable immediately. Bonus may be Reversionary Bonus or Bonus in reduction of premium. Reversionary premium is the bonus payable on the maturity of the policy. Bonus in Reduction of Premium is bonus payable in cash but which is utilized by the policy holder to adjust the premium due by him. There is also what is called the Interim Bonus which is bonus payable on the maturity of a policy pending the ascertainment of profit. With profit policies are those on which, in addition to a guaranteed sum payable on maturity, a share of profits of the company will also be payable. Without Profit Policies are those on which the policy holder gets only a fixed sum of money on maturity and on profit will be paid. 4. Re-insurance: It refers to insurance effected by an insurance company in order to cover itself against a large risk. Suppose a person has insured a building with company X for Rs.1000000. Company X can reduce its risk by getting this person or building insured with company Y either for a part of the amount or full amount. In other words company X has re-insured. If company Y wants to reduce its risks, it can insure the same with company Z, in which case it will be called retrocession. The re-insurance company will pay a commission on the premium received. In the above example, company Y will pay a commission to company X. For company Y it will be commission on reinsurance accepted. For company X the same commission is an income and is called commission on reinsurance ceded. 1. The following balances were extracted from the books of Cosmopolitan Life Insurance Company as on 31.03.2006. You are required to prepare its final accounts. Rs. Shareholders Capital Rs.5,00,000 in 20,000 shares of Rs. 25 200000 each, Rs.10 per share paid up Claims under policies paid and outstanding less received on 4500000 reassurance Life Assurance Fund (1.4.2005) 48000000 Investment Reserve Fund (1.4.2005) 5000000 Expenses of Management 1500427 Investments 51000000 Freehold and Leasehold Property 2500000 Unpaid Dividends 51790 Outstanding Premia (Net) 603200 Claims admitted or intimated but not paid 3000000 Outstanding Interest 590000 Surrenders 358950 Annuities 30000 Premia less reassurances 7500000 Consideration for annuities granted 50500 Bonus in reduction of premium 4000 Gain on redemption of debentures (to be carried to 20000 Investment Reserve Fund) Interests, Dividends and Rents Received 3200337 Interest accrued 317000 Income-tax 280149 Transfer Fees 6430 Agent’s Balances 145904 Furniture and Fittings 90500 Loans on Companies’ Policies 4900000 Cash in hand and at Banks 364000 Stamps on hand 7322 Cheques paid into Banks and in course of collection 49000 Cheques issued but not presented for payment Sundry Creditors Premia received in advances 66520 44875 100000 2. The following balances were extracted from the books of Mutual Life Assurance Company as on 31.03.2006. Debit Rs. Credit Rs. Mortgages 1400000 Outstanding claims 22000 Buildings 145000 Premiums 3394000 Loans 155000 Consideration for 420000 annuities granted Investments 1200000 Interest and Dividends 100000 Surrenders 25000 Life Assurance Fund 950000 Annuities 12000 (1.4.2005) Claims by death 700000 Claims by maturity 1000000 Agent’s Balance 5000 Deposits with RBI 30000 Outstanding Premiums 35000 Commission 54000 Cash at Bank 50000 Sundry Debtors 63000 Bonus in reduction of 5000 Premium Interest accrued but 7000 not received 4886000 4886000 You are required to prepare the final accounts after taking into account the following adjustments; a. Premiums outstanding 4500 b. Interest accruing but not due 3700 c. Claims admitted but not paid 3200 d. Surrender claims not paid 1100 e. Further bonus utilized in reduction of premiums 2000 3. The following trail balances was extracted from the books of New Bharat Life Assurance Company Limited as on 31.03.2006. Debits Rs. Credits Rs. Paid up Capital (10000 shares of Rs.10 100000 each) Life Fund Balance (1.4.2005) 2972300 Dividends Paid 15000 Bonus in reduction of Premium 31500 Premium less reinsurance premium 161500 Claims paid 197000 Outstanding claims (1.4.2005) 7000 Commission 9300 Management Expenses 32300 Mortgages in India 492200 Interest and Dividends received 112700 Agents balances 9300 Freehold premises 40000 Investments Loans on Companies Balances Cash on deposits Cash in hand and current accounts Surrenders Medical fees Consideration for annuities granted Annuities 2305000 173600 27000 7300 7000 7000 10000 10000 3363500 3363500 Prepare revenue account for the year ended 31st march 2006 and a balance sheet of the company as at that date after taking the following into consideration. 1. claims outstanding Rs.10000 2. further bonus in reduction of premium Rs.5000 3. premium outstanding Rs.5000 4. claims covered under reinsurance Rs 80000 5. management expenses due Rs. 30000 6. commission on reinsurance ceded Rs. 5000 4. From the following figures extracted from the books of life assurance Company Limited as on 31.03.2006. Rs. Cash in hand 1900 Cash at bank 9020 Life fund on 1st April 2005 5556148 Share Capital 100000 Interest accrued but not received 69613 Investment Reserve Fund 88000 Outstanding premiums 77651 Premium less re-assurance 355674 Loans on security of policies 425360 Consideration for annuities to be granted 11338 Shares and debentures in other companies 2042477 Interest and dividends (less tax) 223535 Municipal Securities 850320 Fines for revival of policies 358 Foreign Govt. Bonds 172760 Claims announced but not paid 76135 Bank loans 50000 British Govt. securities 569517 Annuities due but not paid 427 Premium received in Advance 575 Development loan 415000 Stamps in hand 269 Mortgages Outside India 394360 Mortgages in India 902956 Claims by death 337955 Claims by Survivance 32226 Surrenders 37303 Income-tax on profit 8594 Annuities 38688 Bonus in reduction of premium 11156 Commission 11417 Interest and dividend to shareholders 9878 Management Expenses 40070 Interest outstanding on Investment 3700 The following information are given: 1. Further Bonus utilized in reduction of Life Insurance Premium Rs.6500. 2. Claims covered under re-insurance Rs.27000. 5. The following trail balances was extracted from the books of Life Insurance Corporation as on 31.03.2006. You are required to prepare the final accounts for the year ended 31 st March 2006 after taking the following facts into consideration: 1. Claims admitted but not paid 9000 2. Management Expenses Due 200 3. Interest accrued 19000 4. Premium outstanding 10000 5. Bonus utilized in reduction of premium 2000 6. Claims covered under reinsurance 2300 Debits Rs. Credits Rs. Paid up Capital (10000 shares of Rs.10 100000 each) Life Fund Balance (1.4.2005) 2972300 Dividends Paid 15000 Bonus in reduction of Premium 31500 Premium less reinsurance premium 161500 Claims paid 197000 Commission Paid 9300 Management Expenses 32300 Mortgages in India 492200 Interest and Dividends received 112700 Agents balances 9300 Freehold premises 40000 Investments 2305000 Loans on Companies Balances 173600 Cash on deposits 27000 Cash in hand and current accounts 7300 Surrenders 7000 3346500 3346500 6. From the following trail balance prepare Ltd. for the year 31.03.2006. Debit Rs. Loans on Life interests 4281 Expenses of 18241 Management Depoist with RBI Govt. Securities Commission Feehold Ground Rents Bonus in cash the Final Accounts of the Indian Assurance Company Credit Premium Profit on sale of investments claims admitted but not 200000 Paid 9872 Sundry Creditors 168421 Consideration for annuities granted 4222 Interest, Dividend and Rent-(Gross) Rs. 365982 10824 58421 7724 12272 120682 Surrenders Claims by maturity Annuities paid House property Claims by death O/s premium Income tax on interest receipts Agent’s balance Port trust Debenture Interest and Principal Guaranteed by the Govt. Cash at bank Cash in Hand Foreign Govt. Securities Office Furniture Shares in other cos. Stock of policy stamps in land Mortgages in India Mortgages outside India Loans on Govt. Securities British Govt. Securities Loans on company’s Policies 21104 104728 7681 59888 172681 21641 7139 6824 528241 12724 354 142520 1500 121621 168 661421 206490 498321 221640 174692 3376415 3376415 7. From the following trail balance Life Insurance Company prepare the Final Accounts after taking into account the following adjustments. 1. Claims outstanding on 31.03.2006 13500 2. Claims recoverable from reinsurer 6000 3. Further Bonus utilized in reduction of premium 3000 4. Premiums outstanding 1500 5. Management expenses due 4500 6. Surrenders adjusted against loan on policies 5000 Trial Balance as on 31.03.2006 Debit Rs. Credit Rs. Claims paid 59500 Life Assurance Fund 1551800 (1.4.2005) Surrenders 8000 Investment Fluctuation 54000 Fund Loans against 349500 Premium Deposits 18000 Mortgages Loans against Policies 150000 Sundry Creditors 22500 Expenses of 111000 Interest accrued 84000 Management Depreciation of Fixed 1500 Claims outstanding on 9000 Assets 1.4.2005 Govt. Securities with RBI Other securities Fixed Assets Income-tax deducted on interest Outstanding premium on 31.03.2006 Interest accrued Sundry Debtors Bonus in reduction of Premium Cash and Bank Balance 390000 Premiums insurance 825000 75000 9000 less re- 421000 66000 15000 24000 3000 73800 2160300 2160300 8. The following trail balances was extracted from the books of Life Insurance Corporation as on 31.03.2006. Debits Rs. Credits Rs. Mortgages 1400000 Loans 300000 Investments 1200000 Surrenders 25000 Annuities 12000 Claims by death 850000 Claims by maturity 850000 Claims due on 1.4.2005 22000 Agents balances 5000 Deposit with RBI 30000 Premium 3000000 Premium Outstanding 35000 Consideration for annuities 400000 Commission paid 54000 Interest and Dividend 494000 Life Fund on 1.4.2005 970000 Cash at Bank 50000 Management Expenses 50000 Bonus in reduction of premium 18000 Interest accrued 7000 4886000 4886000 Adjustments: 1. Premium Outstanding Rs.4000 2. Claims admitted but not paid on 31.03.2006 Rs.4500 3. Surrender claims not paid Rs.1500 4. Surrenders adjusted against loans on policies Rs.5000 5. Further Bonus in reduction of premium Rs.2500. Prepare Final Accounts. 9. The following are the ledger balances of Bharat Life Assurance Co. Ltd. as on 31 st March 2006. Rs. Premium 1890500 Life Assurance Fund as on April 1, 2005 2527825 Claims paid 420600 Claims admitted but not paid 40210 Consideration for annuities granted 120000 Interest, Dividends and Rents 170620 Annuities 80900 Income-tax on interest 30200 Loss on sale of investments 127800 Loans on policies 650000 Surrenders 112800 Re-assurance Premium 214500 Buildings 450000 Policy stamps on hand 6700 Mortgage in India 1012700 Bonus in reduction of premium 10200 Bonus in cash 7800 Investments 1250000 Furniture 24500 Commission 40670 Expenses of Management 127800 Cash and Bank balances 140790 Outstanding Premium 440600 Agents balances (Dr.) 120500 Outstanding Expenses 52200 Share capital 500000 Dividend paid to shareholders 25000 Interest outstanding on Investments 7295 Prepare the final accounts of the company, taking the following matters into consideration: 1. Claims covered under reinsurance Rs.47500 2. The Managing Director is to be paid commission of Rs.51520 3. Further Bonus in reduction of premium is Rs.5000 10. From the following information prepare Revenue Account of Active life Insurance Company Limited for the year ended 31.03.2006. Rs. Life Assurance Fund (1.4.2005) 3042000 Claims by death 152280 Claims by maturity 60220 Premiums 1411380 Transfer Fees 258 Interest and Dividends 195680 Income-tax thereon 11420 Bonus in Reduction of Premium 1960 Consideration for Annuities granted 164254 Annuities paid 106922 Bonus in cash 4832 Expenses of Management 63840 Commission 19148 Surrenders 26280 Dividends to Shareholders 11000 11. The following trail balances was extracted from the books of National Life Assurance Company as on 31.03.2006. Debits Rs. Credits Rs. Share Capital 320000 Life Assurance Fund (1.4.2005) Dividend Paid 30000 Interest and Dividend Received 225400 Premiums Received 203000 Surrenders 14000 Claims paid 394000 Commission paid 18600 Management expenses 64600 Mortgages in India 984400 Agents Balances 18600 Freehold Premises 80000 Investments 4610000 Loans on Company’s Policies 347200 Cash on Deposits 54000 Cash in hand 14600 Bonus to Policyholders 63000 6693000 6693000 You are required to prepare the company’s final accounts for the year ended March 31, 2006, after taking into consideration, the following adjustments: 1. Claims admitted but not paid 18600 2. Premium outstanding 24000 3. Interest accrued 38600 4. Management expenses Due 400 12. The following trail balances was extracted from the books of Life Insurance Corporation as on 31.03.2006. Rs. Life Assurance Fund (as on 1.4.2005) 1470562 Premium 210572 Management expenses 19890 Consideration for annuities granted 10620 Dividend paid 20000 Fines 92 Annuities 29420 Bonus in reduction of premium 2500 Stamps on hand 400 Annuities due but not paid 22380 Govt. Securities 870890 Mortgages 309110 Freehold Premises 500000 House property 100000 Claims by death 79980 Claims by maturity 36420 Commission 26541 Interest dividends and rent 52461 Income-tax on Interest 3060 Surrenders 21860 Bonus paid in cash 9450 Preliminary expenses 200 Claims admitted but not paid 80034 Share capital 403000 Furniture 20000 Loans on Company’s Policies 200000 Prepare the final accounts of the company after taking into consideration, the following: 1. Claims covered under reinsurance Rs.20000 2. Further claims intimated Rs.20000 3. Further bonus utilized in reduction of premium Rs.3000 4. Re-insurance premium Rs.6000 5. Premium outstanding Rs.8000 13. The following trail balances was extracted from the books of Life Insurance Corporation as on 31.03.2006. Rs. Shareholders Capital(Rs.10,000 shares of Rs.25 each, Rs.10 100000 per share paid up) Claims under policies paid and outstanding less received on 2250000 reassurance Life Assurance Fund (1.4.2005) 24000000 Investment Reserve Fund (1.4.2005) 2500000 Expenses of Management 750213 Investments 25500000 Freehold and Leasehold Property 1250000 Unpaid Dividends 25895 Outstanding Premium (Net) 301600 Claims admitted or intimated but not paid 1500000 Outstanding Interest 295000 Surrenders 179475 Annuities 15000 Premium less reassurances 3750000 Consideration for annuities granted 25250 Bonus in reduction of premium 2000 Gain on redemption of debentures (to be carried to 10000 Investment Reserve Fund) Interests, Dividends and Rents Received 1600168 Interest accrued but not payable 158500 Income-tax paid 140074 Transfer and other Fees 3215 Agent’s Balances Outstanding 72952 Furniture and Fittings 45250 Loans on Companies’ Policies within their surrender value 2450000 Cash in hand and at Banks 182000 Stamps in hand 3661 Cheques paid into Banks and in course of realisation 24500 Cheques issued but not presented for payment 33260 Sundry Creditors 22437 Premium received in advance 50000 st You are required to prepare the revenue account for the year ended 31 march, 2006 and a balance Sheet at the date, of the New India Life Insurance Co. Ltd. 14. From the following figures prepare Revenue Account in the Statutory from of the Star Life Assurance Company Limited for the year ended 31.03.2006. Rs. Claim by death paid 142000 Claim by maturity paid 70200 Premiums 1412100 Considerations for annuities granted 164000 Annuities paid 106900 Bonus paid in cash 4800 Expenses of Management 63800 Commission 19140 Interest, Dividends, Rents (net) 195700 Income-tax deducted at source 12400 Surrenders 26300 Bonus in reduction of premium 1800 Dividends paid to shareholders 9000 Amount of Life Assurance Fund at the beginning of the year 3045000 Outstanding Death Claims at the beginning of the year 22000 Outstanding Death claims at the end of the year 16000 15. The following are the ledger balances of Life Assurance Co. Ltd. as on 31 st March 2006. Rs. Premiums 1890500 st Life assurance fund as on 1 April, 2005 2527825 Claims paid 420600 Claims admitted but not paid 40210 Consideration for annuities granted 120000 Interest, dividends and rents (gross) 170620 Income-tax on interest and dividends 30200 Annuities 80900 Loss on sale of investments 127800 Loans on policies 650000 Surrenders 112800 Re-assurance premium 214500 Buildings 450000 Policy stamps on hand 6700 Mortgages in India 1012700 Bonus in reduction of premium 10200 Bonus in cash 7800 Investments 1250000 Furniture 24500 Commission 40670 Expenses of management 127800 Cash and bank balances 140790 Outstanding Premium 440600 Agent’s Balances (Dr.) 120500 Outstanding Expenses 52200 Share Capital 500000 Dividend paid to shareholders 25000 Interest outstanding on investments 7295 Prepare the final accounts of the Company, taking the following matters into consideration: 1. Claims covered under re-insurance Rs.47500 2. The Managing Director is to be paid commission at the rate of 5% on the net increase of Life Assurance Fund during the year before providing for such commission. 3. Pending the Acturial Valuation a reserve of 20% premium income is to be made 4. Further bonus in reduction of premium Rs.5000 16. The following trail balances was extracted from the books of Life Assurance Company Limited as on 31.03.2006. Debits Rs. Credits Rs. Paid up Capital (10000 shares of Rs.10 200000 each) Life Fund Balance (1.4.2005) 5944600 Dividends Paid 30000 Bonus to policy holders 63000 Premium received 323000 Claims paid 394000 Commission Paid 18600 Management Expenses 64600 Mortgages in India 984400 Interest and Dividends received 225400 Agents balances 18600 Freehold premises 80000 Investments 4610000 Loans on Company’s policies 347200 Cash on deposits 54000 Cash in hand and current accounts 14600 Surrenders 14000 6693000 6693000 You are required to prepare the company’s revenue account for the year ended 31 st March, 2006 and its balance sheet as on that date after taking the following matters into consideration: 1. Claims admitted but not paid 18600 2. Management expenses due 400 3. Interest accrued 38600 4. Premiums outstanding 24000
