CORPORATE ACCOUNTING

ACCOUNTS OF LIFE INSURANCE COMPANIES

Problems
Short Answer Questions

1. Ascertain the Premium Income of Shubham Life Assurance Co., Ltd., as per Schedule I.
(Rs. 000)
Premium received :
First year premium 5,030
Renewal premium 1,400
Single premium 500
Premium outstanding at the beginning of the year 175
Premium outstanding at the end of the year 450

2. Ascertain Commission as per Schedule – 2.

Commission paid (Rs. 000)
Direct – First year premium 3,050
Renewal premium 1,020
Single premium 30
Commission on Reinsurance Ceded 50
Commission on Reinsurance Accepted 100

3. Ascertain the Operating Expenses related to Insurance Business as per Schedule – 3.

(Rs. 000)
Employee Remuneration and welfare expenses paid 2,410
Travel and Conveyance 30
Rent, Rates and Taxes 40
Printing and Stationary 15
Medical Expenses 5
Commission to Agents 150
Auditors fees paid 20
Surrenders 180
Annuities Paid 250

4. Ascertain the total amount of Benfits Paid – Schedule 4.

Amount
Claims by Death paid 2,50,000
Claims by Maturity paid 1,75,000
Outstanding claims at the beginning of the year
By Death 25,000
By Maturity 30,000
Outstandint claims at the end of the year
By Death 60,000
By Maturity 40,000
Claims covered under reinsurance (Death) 25,000
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5. From the following particulars prepare Schedule 4 – Benefits paid.
(Rs. 000)
Claims by death paid 8,060
Claims by death :
Outstanding at the beginning of the year 200
Outstanding at the end of the year 250
Claims by maturity paid 2,350
Claims by maturity :
Outstanding at the beginning of the year 450
Outstanding at the end of the year 600
Claim amount ceded in Reinusrance :
Death 280 , Maturity 140 420
Claims amount accepted in Reinsurance :
Death 400 , Maturity 160 560
Annuities Paid 400
Surrenders 250

6. From the following you are required to calculate the claims to be debited to Revenue
Account for the year ending 31st March 2002.

Claims intimated in 2001 2002 2000 2000 2002 2002

Claims admitted in 2001 2002 2001 2001 2003 2002
Claims paid in 2002 2003 2001 2002 2003 2002
Amount (Rs) 7,500 5,000 2,500 6,000 4,000 51,000

7. From the following particulars prepare Valuation Balance Sheet and ascertain the bonus
payable to polcyholders.
Amount
Life Assurance Fund 2,67,54,000
Net Liability uner Insurance and annuity contracts 2,35,14,000

8. Life Assurance Fund at the beginning of the year Rs. 1,25,60,500

Claims and other expenses charged to Revenue Account
Exlcuding Managing Director’s Commission Rs. 43,03,900
Premium and other incomes received during the year Rs. 67,43,400
The Managing Director is to be paid commission at the rate of 5 % on surplus
earned during the year before providing for such commission. Ascertain the managing
director’s commission.

9. A company dealing in Life Insurance disclosed a fund of Rs. 50 lakhs on 31-3-2003

before taking the following into consideration :
(a) A claim for Rs. 32,000 outstanding in the books of 8 years is not to be honoured.
(b) Bonus utilized in reduction of premium Rs. 32,000.
(c) Reinsurance premium Rs. 14,000 and commission on it Rs. 4,000.
Find out the life fund after above adjustments.
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10. The Life Assurance Fund of Sada Bahaar Assurance Co., Ltd., on 31st March 2004
amounted to Rs. 60,64,500. The company’s actuary estimated the net liability in
respect of all contracts to be Rs. 54,21,500. The Director’s resolved as under :
(i) Rs. 30,000 be set apart for actuarial expenses.
(ii) 85 % of the net surplus be utilized for paying bonus to policyholders.
(iii) 10 % of the net surplus be utilized towards dividend to shareholders and the
balance to be carried forward.
Pass journal entries to give effect to the above resolution of the Directors.

Main Problems
1. From the following figures prepare Revenue Account in the statutory form of the Star
Assurance Co., Ltd., for the year ended 31st March 2004.
(Rs. 000)
Claims by death paid 1,42,000
Claims by maturity paid 70,200
Premiums 14,12,100
Considerations for Annuities granted 1,64,000
Annuities paid 1,06,900
Expenses of Management 79,400
Commission 19,140
Interest, Dividends, Rent (Net) 1,95,700
Income tax deducted at source 12,400
Surrenders 26,300
Amount of Life Assurance Fund at the beginning of the year 30,45,000
Outstanding death claims at the beginning of the year 22,000
Outstanding death claims at the end of the year 16,000

2. Prepare Revenue Account of Pravek Life Assurance Co., Ltd., for the year ended 31st
March 2004 from the following particulars :
(Rs. 000)
Claims by Death 1,52,280
Claims by Maturity 60,220
Premium :
First Premium 5,00,000
Renewal Premium 7,11,380
Single Premium 2,00,000
Transfer Fees 258
Consideration for Annuities granted 1,64,254
Annuities paid 1,06,922
Expenses of Management 74,840
Commission paid 25,940
Interest, Dividend and Rent (Gross) 1,95,680
Income tax on above 11,420
Surrenders 26,280
Life Assurance Fund at the beginning of the year 30,42,000
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3. From the following figures of Sound Insurance Co., Ltd., prepare the Revenue Account
for the year ended 31st March 2004.
(Rs. 000)
Premium received 15,80,000
Interest, Dividends and Rents 9,50,000
Fines and Fees 8,000
Income Tax 1,25,000
Management Expenses 2,25,000
Annuities paid 20,000
Commission 65,000
Surrenders 60,000
Surplus on revaluation of reversions 5,000
Re-assurances irrecoverable 2,000
Claims paid under reinsurance 9,20,000
Consideration for Annuities paid 50,000
Interim bonus paid 1,20,000
Net Liability on all insurance contracts in force on :
31-3-2003 24,00,000
31-3-2004 26,50,000
Life Assurance Fund on 31-3-2003 26,30,000
The company decides to transfer 10 % of surplus to shareholders. 10 % to
Catastrophe Reserve and the Balance should be carried forward.

4. Following balances are extracted from the books of Bharat Life Insurance Co., Ltd., as
on 31-3-2003.
(Rs. 000)
Premiums 1,80,000
Re-insurance 4,150
Bonus in Cash 1,200
Annuities (Dr) 3,910
Medical fee 3,010
Surrenders 6,500
Interest, Dividends etc 40,000
Claims by Death 55,000
Claims by Maturity 25,000
Commission 37,300
Income Tax 1,700
Managerial Expenses 42,000
Annuities (Cr) 3,000
Fines for revival of policies 30
Prepare Revenue Account for the year 2002-2003 after considering the following :
(Rs. 000)
(i) Life Fund as on 1-4-2002 Rs. 10,12,000.
(ii) Net interest accrued on investments Rs. 5,390.
(iii) Outstanding claims and premiums are Rs. 30,750 and Rs. 15,500 respectively.
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(iv) Re-insurance settlements due on account of claims and premiums Rs. 10,000
and Rs. 8,000 respectively.
(v) A claim of Rs. 1,000 included in the outstanding claims is to be written off as it is
10 years old and is not likely to arise.
(vi) The M.D. is to be paid a commission of 5 % on the net increase of life fund
during the year before providing such commission.

5. Following balances were extracted from Sound Assurance Company Ltd., after the
preparation of schedules (except schedule 6) for the year ended 31st March 2004. You
are required to prepare Revenue Account for the year ended 31st March 2004 and
Balance Sheet as on 31st March 2004.
Schedule No. (Rs. 000)
Premium earned 1 2,50,000
Income from Investments 80,000
Other Incomes -- fine 2,000
Commission expenses 2 20,000
Operating Expenses related to Insurance Business 3 80,000
Benefits paid 4 1,52,000
Share Capital 5 50,000
Borrowings 7 18,000
Investments 8 30,000
Loans 9 70,000
Fixed Assets 10 1,41,000
Current Assets :
Cash and Bank Balances 11 60,000
Advances and other Assets 12 20,000
Current Liabilities 13 15,000
Provisions 14 5,000
Life Assurance Fund on 1-4-2003 1,53,000

6. Given below is the trial balance abstracted from the books of the Gujarat Mutual Life
Assurance Association Ltd., on 31st March 2004.
(Rs. 000) (Rs. 000)
Claims paid and outstanding 1,15,200
Surrenders 3,300
Reversionary bonus paid and outstanding 12,300
Establishment Charges 23,500
Commission to Agents 48,500
Medical Fees 10,100
Director’s and Auditor’s Fees 24,000
Stationary and Printing 4,800
Postage and Telegram 1,050
Office Rent 4,200
Sundry Expenses 800
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Bank Charges and Commission 950

Investments 40,47,000
Loans on Policies 1,74,700
Outstanding Interest 69,800
Outstanding Premium 23,600
Cash at Bank 29,600
Fines and Fees Received 300
Interest and Dividend received and accrued 2,25,300
Premium received and outstanding 3,30,800
Premium received in advance 9,000
Claims admitted but not paid 10,000
Claims intimated but not admitted 20,000
Sundry Creditors 18,000
Fund :
Life Assurance Fund 33,80,000
Reserve Fund 6,00,000 39,80,000
45,93,400 45,93,400
Prepare the Revenue Account of the Association for the year ended 31st March 2004
and the Balance Sheet as on that date :

7. From the following figures relating to Sound Insurance Co., a unit of LIC, prepare
Revenue Account for the year ended 31st March 2004 and Balance Sheet as on that
date.
(Rs 000)

Claims by Maturity 3,50,000

Claims by Death 2,60,000
Deposits with RBI 1,30,000
Central Government Securities 4,00,000
State Government Securities 1,50,000
Foreign Government Securities 30,000
Expenses of Management 55,000
Annuities 15,000
Loans on company’s policies 7,00,000
Mortgages in India 6,00,000
Cash at Bank on Current Account 80,000
Cash in hand 5,000
Bonus in Cash 10,000
Bonus in Reduction of Premium 8,000
Surrenders 2,000
Outstanding Premium 17,000
Premium Received 6,20,000
Premium received in advance 3,000
Freehold Ground Rent 60,000
Claims intimated but not admitted 35,000
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Credit balances pending adjustments 12,000

Share Capital Issued and Subscribed
5,00,00,000 shares of Rs. 10 each fully paid 5,00,000
Reserve Fund 50,000
Loan on Government Securities 8,00,000
Mortgages out of India 1,50,000
Fully paid up shares in limited liability companies 25,000
Life Assurance Fund as on 1st April 2003 25,00,000
Consideration for annuities granted 39,000
Due to other insurers 10,000
Due from other insurers 6,000
Transfer fees 400
Agents balances 4,000
Commission 15,000
Furniture and Fixtures 15,000
Interest, Dividends and Rents (Gross) 1,20,000
Income tax on above 15,000
Outstanding Interest 13,000
Interest accrued but not due 5,000
Claims admitted but not paid 40,000
Advance payment of income tax 10,000
Revival fees 600

8. From the following Trial Balance prepare the Revenue Account and the Balance Sheet of
Imaginary Assurance Co., Ltd.

Trial Balance as at 31st March 2004

(Rs.000) (Rs.000)
Premiums 3,65,982
Profit on sale of investments 10,824
Claims admitted but not paid 58,421
Sundry Trade Creditors 7,724
Life Assurance Fund at the beginning of the year 28,00,510
Consideration for annuities granted 12,272
Interest, dividends and rent -- gross 1,20,682
Loans on Life Interests 4,281
Expenses of Management 18,241
Deposits with RBI Government Securities 2,00,000
Commission 9,872
Freehold Ground Rents 1,68,421
Bonus in Cash 4,222
Surrenders 21,104
Claims by maturity 1,04,728
Annuities paid 7,681
Claims by death 1,72,681
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House Property 59,888

Outstanding Premium 21,641
Income tax on income receipts 7,139
Agents balances 6,824
Port Trust Debentures, interest and
Principal guaranteed by Government 5,28,241
Cash at Bank Current Account 12,724
Cash in hand 354
Foreign Government Securities 1,42,520
Office Furniture 1,500
Fully paid up shares in Limited Liability
Companies registered in India 1,21,621
Stock of policy stamps in hand 168
Mortgages in India 6,61,421
Mortgages out of India 2,06,490
Loans on Government Securities 4,98,321
British Government Securities 2,21,640
Loans on Company’s Policies 1,74,692
33,76,415 33,76,415

9. The following Trial Balance was extracted from the books of the New Bharat Life
Assurance Co., Ltd., as on 31st March 2004.

(Rs 000) (Rs 000)

Paid up share capital in shares of Rs. 10 each 1,00,000
Life Assurance Fund as on 1st April 2003 29,72,300
Bonus to Policy holders 31,500
Premium received 1,61,500
Claims paid 1,97,000
Commission paid 9,300
Management expenses 47,300
Mortgages in India 4,92,200
Interest and dividend received 1,12,700
Agents balances 9,300
Freehold Premises 40,000
Investments 23,05,000
Loans on Company’s Policies 1,73,600
Cash on Deposit 27,000
Cash in hand and on current account 7,300
Surrenders 7,000
33,46,500 33,46,500

You are required to prepare the company’s Revenue Account for the year ended 31st
March 2004 and its Balance Sheet as on that date after taking the following into
consideration.
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(Rs 000)
(a) Claims admitted but not paid 9,300
(b) Management expenses due 200
(c) Interest accrued 19,300
(d) Premium outstanding 12,000

10. The undermentioned balances form part of the Trial Balance of one Life Insurance
Company as on 31st March 2004. All figures in thousands.

Amount of Life Assurance Fund at the beginning of the year Rs. 14,70,562; Claims by
Death Rs. 76,980; Claims by Maturity Rs. 56,420; Premiums Rs. 2,10,572; Expenses
of Management Rs. 19,890; Commission Rs. 26,541; Consideration for Annuities
granted Rs. 10,620; Interest, dividends and rents Rs. 52,461; Income Tax on the
above Rs. 3,060; Fines Rs. 92; Surrenders Rs. 21,860; Annuities Rs. 29,420; Bonus
paid in Cash Rs. 9,450; Bonus paid in reduction of premium Rs. 2,500; Preliminary
expenses balance Rs. 600; Claims admitted but not paid at the end of the year Rs.
80,034; Annuities due but not paid Rs. 22,380; Capital paid up Rs. 4,00,000;
Government Securities Rs. 14,90,890; Fixed Assets Rs. 5,09,110.

Prepare Revenue Account and the Balance Sheet after taking into account the following
(Rs 000)
(a) Claims covered under reinsurance 10,000
(b) Further claims intimated 8,000
(c) Further bonus utilized in reduction of premium 1,500
(d) Interest accrued 15,400
(e) Premium outstanding 7,400

11. The following Trial Balance was extracted from the books of Safe Life Assurance
Company Ltd., as on 31st March 2004.

(Rs 000) (Rs 000)

Claims by death 80,000
Claims by maturity 55,000
Expenses of Management 20,000
Commission to Agents 8,000
Income Tax on profits 3,000
Surrenders 12,000
Annuities paid 24,000
Bonus in Cash 9,000
Bonus in reduction of premium 3,000
Preliminary Expenses 1,000
Port Trust Debentures 3,45,000
Government Securities 4,10,000
Loans on Government Securities 3,50,000
Loans on Company’s Policies 2,50,000
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Building at cost (including Rs. 50,000 added

During the year) 9,00,000
Life Assurance Fund at the beginning of the year 15,00,000
Premium received 2,10,000
Consideration for annuities granted 90,000
Interest, Dividends and Rents 50,000
Outstanding Annuities 20,000
Capital, Issued and Subscribed 50,00,000 Shares
Of Rs. 100 each, fully paid 5,00,000
Building Depreciation Account 1,00,000
24,70,000 24,70,000

Prepare Revenue Account for the year ended 31st March 2004 and the Balance Sheet
as on that date after taking into account the following :

All figures in thousands :

(i) Claims by death covered under reinsurance Rs. 20,000 and further claims (by
death) intimated Rs. 15,000.
(ii) Further bonus utilized in reduction of premium Rs. 20,000.
(iii) Premium outstanding Rs. 30,000; Commission thereon Rs. 2,000.
(iv) Expenses of management outstanding Rs. 12,000 and prepaid Rs. 3,000.
(v) Provide Rs. 30,000 for depreciation on buildings.
(vi) Premium payable under reinsurance Rs. 8,000.

12. A Life Assurance Company got its valuation made once in every two years. The Life
Assurance Fund on 31st March 2004 amounted to Rs. 41,92,000 before providing for
Rs. 32,000 for the Shareholders dividend for the year. Its actuarial valuation on 31st
March 2004 disclosed a net liability of Rs. 40,40,000 under the assurance and annuity
contracts. An interim bonus of Rs. 40,000 was paid to the policyholders during the year
ending 31st March 2004.
Prepare statement showing the amount now available as bonus to policy holders.

13. The Revenue Account of a Life Assurance Company shows the Life Funds at the end of
the year ended 31st March 2004 at Rs. 48,78,000 before taking the following into
account.
(i) Claims intimated but not admitted Rs. 65,500.
(ii) Bonus utilized in reduction of premium Rs. 6,500.
(iii) Interest accrued on Securities Rs. 19,500.
(iv) Outstanding premium Rs. 18,000.
(v) Claims covered under reinsurance Rs. 27,000.

You are required to pass the necessary journal entries and find out the Balance of Life
Assurance Fund at the end of the year ended 31st March 2004 after making the above
adjustments.
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14. Sada Sukhi Life Assurance Company Ltd., disclosed a fund of Rs. 18,00,000 on 31st
March 2004 before taking the following into consideration.

(a) A claim of Rs. 20,000 was intimated and admitted but not paid during the year.
(b) A claim of Rs. 2,000 outstanding in the books for 10 years is to be treated as
negatived.
(c) Interest accrued on investments Rs. 16,000.
(d) Claims covered under reinsurance Rs. 25,000.
(e) Further bonus utilized in reduction of premium Rs. 5,000.
(f) Outstanding premiums Rs. 18,000.
(g) Premium payable under reinsurance Rs. 2,000.
(h) Agents commission to be paid Rs. 3,000.

Pass the necessary journal entries for the above omissions and ascertain the correct
Balance of Fund.

The net liability on this date as per actuary’s certificate was Rs. 15,30,000. Ascertain
the valuation surplus and allocate the surplus between the shareholders and policy
holders in the ratio of 1 : 9 after reserving Rs. 6,000 towards actuary’s remuneration.