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1. What are the different types of bonus?

Bonus is the share of profit which a policyholder gets from the insurance company. It is paid to
the holders of ‘with profit policies. ’

(i) Cash Bonus: This is the amount of bonus paid in cash. It is an expense to be debited in
Revenue Account.

(ii) Reversionary Bonus: It is the portion of profits payable as bonus to the policyholders on
maturity of the policy.

(iii) Bonus in Reduction of Premium: Instead of paying bonus in cash to the policyholders, the
insurance company deducts the amount from the premium payable to it.

2. What are the types of life insurance policies?

A life insurance contract is one whereby the insurer, in consideration of premium paid either in
lump-sum or in periodical instalments, 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.

(i) Whole Life Policy

Under this policy the assured sum becomes due for payment to the beneficiary only after the
death of the insured. It means that the insurer has to pay premium on such policy throughout
his life-time.

(ii) Endowment Life Policy

It is a policy which runs for a fixed period or up to a particular age of the insured. The insured
amount becomes due for payment either on the death of the insured or on the expiry of the
specified period whichever is less.

(iii) Annuity Contract

It is a policy, a specified amount is paid annually to the insured from the date he attains a
specified age till his death.

(iv) Multiple Benefit Policy

Under such policies, the maturity, the insured is given several options such as (a) to obtain the
full amount in cash, (b) to receive the policy amount partly in cash and partly in the form of paid-
up capital, and (c) wholly in the form of a paid up policy.

3. What is bonus in reduction of premium? How it is treated in accounting?

Instead of paying bonus in cash to the policyholders, the insurance company deducts the
amount from the premium payable to it. The amount of bonus so adjusted in the premium
amount is called bonus in reduction of premium. While preparing Revenue account, if bonus in
reduction of premium is required to be adjusted, the amount should be debited to the Revenue
Account and the same is added to the premium amount to be shown on the credit side of the
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Revenue Account as it stands reduced by the amount utilized for reduction of premium. But, if
the bonus in reduction of premium is given in the Trial Balance, it need only be debited in the
Revenue account.

4. What is slip system of posting? What are its advantages?

It is a method of rapid posting in books maintained under Double Entry principle. Under this
system posting is done from slips and not from journals or cash books. Slips are loose leaves
of journals and these are supplied either by the customers or by the bank staff. The following
are the advantages of slip system of posting.

(a) Updated Accounts

The bank has to ensure that customers’ (Depositors) ledger accounts are up- to- date, so that
when a cheque is presented to the bank for payment, the bank can immediately decide whether
to honour or dishonor the cheque. Thus, transactions in the bank are immediately recorded.

(b)Division of Work

As the number of transactions in bank is very larger, the slip system permits the distribution of
work of posting simultaneously among many persons of the bank staff.

(c) Smooth flow of work

The accounting work moves smoothly without any interruption. As these slips are filled by the
customers, there is much saving of time and labour of the employees of the bank.

(d)Reduction of the possibility of errors and frauds

As the preparation of daily Trial Balance is facilitated, errors and frauds can be detected then
and there.

(e) Facilitate Internal Check

Internal check system is facilitated as the work done by one clerk is automatically checked by
another clerk as it permits distribution of work of posting simultaneously among many persons
of the bank staff.

5. Distinguish between Internal Reconstruction and external reconstruction.

· In external reconstruction, an existing company is liquidated. But, in the case of internal

reconstruction no company is liquidated.

· In the case of external reconstruction a new company is formed. But in internal

reconstruction, no new company is formed.

6. What is alteration of share capital? What are the different methods of it?

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Alteration of share capital refers to the changes in the existing capital structure of the firm. A
company can alter its share capital only if it is authorized by the article of association. The
following are the different methods of alteration of share capital.

(a) Increasing Authorised Share Capital

The company can raise its share capital by doing alteration in capital clause in the
Memorandum of Association.

(b)Consolidation of Share capital

Consolidation of shares is the conversion of shares of smaller denomination into those of larger
denomination. On consolidation the share capital does not change. But the number of shares
is decreased accordingly.

(c) Conversion of share capital

The company can do alteration in capital by converting the fully paid up shares into the stock.
There-conversion of the stocks into fully paid up shares can also be done.

(d)Sub-division of share capital

When shares of larger denominations are converted into those of smaller denomination, it is
called sub-division of shares. On sub-division of shares, the share capital remains intact, the
number of shares increases accordingly.

(e) Cancellation of share capital

There are some shares which are not taken by any person and diminish that amount of share
capital by the number of shares so cancelled.

7. Differentiate between internal reconstruction and amalgamation.

· In amalgamation, at least two companies are liquidated, whereas, in internal

reconstruction, no company is liquidated.

· In case of amalgamation a new company is formed to take over the business of the
amalgamating companies. But, in internal reconstruction no new company is formed.

· Amalgamation is a case of combination, whereas, internal reconstruction is only

areorganization.

8. Distinguish between internal reconstruction and absorption.

· In absorption, one company is liquidated; while, there is no liquidation in internal

reconstruction.

· Absorption is a case of combination, whereas internal reconstruction is a case of

alteration and reduction of capital.

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9. Differentiate amalgamation and external reconstruction.

Points Amalgamation External Reconstruction

Companies In amalgamation at least two In external reconstruction only one
Liquidated companies go into liquidation. company goes into liquidation.

Combination Amalgamation is a case of External reconstruction is not a

combination of companies. case of reconstruction.

Objective Amalgamation is undertaken to To continue business when it

eliminate competition. becomes illegal.

Size of Size of the business increases with Size of the Balance Sheet usually
Business amalgamation. gents reduced.

10. Differentiate Absorption and external reconstruction

Points Amalgamation External Reconstruction

Formation of a In absorption, no new company is In external reconstruction, a new
new company formed. company is formed.

Number of In absorption the purchasing In external reconstruction, the

companies company takes over the business business of only one company is
taken over of one or more existing companies acquired.

Combination Absorption is a case of business There is no combination in external

combination. reconstruction.

Objective To get benefits of large scale To give a new life to an existing

operation. company.

Circumstances Absorption is undertaken as a To continue business when it

measure to face stiff competition. becomes illegal.

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11. Explain the different methods of calculating purchase consideration.

Purchase consideration is the amount payable by the purchasing company to the shareholders
of the vendor company as the price of the business or assets taken over. It is the aggregate of
the shares and other securities issued and payment in cash by the buying company to the
shareholders of the vendor company. The following are the different methods for calculating
purchase consideration:

(i) Lump Sum Method

It is a method of presentation of purchase consideration in which the purchase price is given in

total.

(ii) Net Asset Method

Under this method purchase consideration calculated by finding out the net - worth of the
business. Net asset or net worth is total of agreed value of assets including goodwill taken over
minus the value of liabilities taken over (assumed) by the purchasing company.

(iii) Net Payment Method

It is a method of calculating purchase consideration. Under this method, according to As 14

the purchase consideration is calculated by adding the various payments made by the
purchasing company in the form of cash, shares, debentures etc. to the shareholders of the
vendor company.

(iv) On the basis of Intrinsic value of shares

Under this method, purchase consideration is calculated on the basis of the intrinsic value of
shares of the vendor company as well as the purchasing company.

Intrinsic Value = Total market value of assets - Liabilities

Number of shares of the company

12. What are the conditions for amalgamation in the nature of merger?

When two or more companies go into liquidation and a new company is formed to take over the
business of the liquidating companies, it is called amalgamation. Hence, two or more liquidation
and one formation take place in the case of amalgamation. An amalgamation should be
considered to be an amalgamation in the nature of merger when all the following conditions
are satisfied:

(i) All the assets and liabilities of the transferor company become, after amalgamation, the
assets are liabilities of the transferee company.

(ii) Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company become the equity shareholders of the transferee company by the virtue
of the amalgamation.

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(iii) The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agrees to become equity shareholders of the transferee company is
discharged by the transferee company wholly by the issue of equity shares in the transferee
company, except that cash maybe paid in respect of any fractional shares.

(iv) The business of the transferor company is to be carried on, after the amalgamation, by
the transferee company.

(v) No adjustment is intended to be made to the book values of the assets and liabilities of
the transferor company when they are incorporated in the financial statements of the transferee
company except to ensure uniformity in accounting policies.

13. Amalgamation in the Nature of Purchase an Amalgamation in the Nature of Merger

An amalgamation should be considered as amalgamation in the nature of merger when all the
assets and liabilities of the transferor company becomes the assests and liabilities of the
transferee company and it should be accounted for pooling of interests method. It is a friendly
joining together of two organizations but in the case of amalgamation in the nature of purchase
the assests and liabilities are acquired by the transferee company for a purchase consideration
and the transferor company need not be continued .

Amalgamation between two or more companies is made with certain specific motives. It
becomes amalgamation in the nature of merger or purchase based on the way in which one
company is taken over by the other. Therefore it is not practically correct to say that
any one method of amalgamation is stronger or weaker.

Basis Amalgamation in the Amalgamation in the

Nature of Merger Nature of Purchase
Continuation of the The same business of The same business of
Same Business the transferor company is the transferor company need
expected to be continued not be continued on by the
on by the transferee transferee company
company
Method of Accounting Pooling of Interest Method Purchase Method
Equity Shareholding Equity shareholders The transferee company
holding 90% equity shares in takes the role of dominant
transferor companies party after the
become shareholders of the amalgamation and there
transferee company. fore, equity shareholders in
the transferor company may
not get proportionate
sharesof transferee
company.
Purchase Consideration Purchase consideration is Purchase consideration need
fully discharged by the issue not be discharged fully by
of equity shares except cash the issue of equity shares.
for fractional shares

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Treatment of Assets All assets and liabilities There need not be transfer of
and are transferred to the all assets and liabilities.
Liabilities transferee company.

14. Amalgamation

When two or more existing companies go into liquidation and a new company is formed to take
over the business of the liquidating companies ,it is called amalgamation. In the case of
amalgamation,

i. The assets and liabilities of the existing companies are transferred to a newly created
company.

ii. All the combining companies lose their separate identities as none of them survives.

iii. The operations of liquidated companies are carried on by the new company as a single legal
entity. Objectives of Business Combinations

i. Synergy ii. Economies of Scale iii. Accelerated Growth iv. Diversification of Risks v.
Financial Economies

15. External reconstruction

External reconstruction is the liquidation of an existing company and the formation of a new
company for the purpose of taking over the business of the liquidating company . Features :

1. One company goes into liquidation

2. In external reconstruction , a new company is formed

3. The business of only one company is acquired

4. There is no combination in external reconstruction

5. Through external reconstruction business continue when it becomes illegal

6. To give anew life to an existing company

16. Duties of Liquidator

1. When the liquidator receives the Statement of Affairs from the Directors, he must
submit a preliminary report to the court.

2. On getting the winding up order, the liquidator has to take the properties under his
control.

3. He must protect the assets of the company.

4. He should realise the assets and distribute the proceeds among the creditors and the
surplus, if any, among the contributories.

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5.He must keep proper books of accounts.

6. He must make a record of minutes to be made for all proceedings at meeting.

7. He must execute all deeds, receipts and documents on behalf of the company.

8. He must do such other things as are necessary for the winding of the affairs of the
company.

17. Journal entries in the books of Green Ltd.

Particulars Dr. Cr.

Euity share capital (old) 10,00,000
To Equity share capital (new) 10,00,000
(Equity shares of 100 each dividend in to
equity
shares of 10 each)
Equity share capital 8,00,000
To Surrendered shares 8,00,000
(Surrender of 80% of the equity shares of10
each)
15% DebenturesDr. 5,00,000
To Capital Reduction 5,00,000
(The debentures to be redeemed
asreconstruction scheme)
Surrendered sharesDr. 4,00,000
To Equity share capital 4,00,000
(Surrendered shares being issued to
debenture
holders in full settlement of their claims)
CreditorsDr. 2,50,000
To Capital Reduction 2,50,000
(Creditors to be paid off under reconstruction
Scheme by issuing surrendered shares)
Surrendered sharesDr. 2,00,000
To Equity share capital 2,00,000
(Surrendered shares being reissued tocreditors
in full settlement)

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Surrendered shares 2,00,000
To Capital reduction 2,00,000
(Surrendered shares left after the issue
ofdebenture holders and creditors transferredto
capital reduction account)
Capital Reduction 9,50,000
To Goodwill 3,80,000
To Profit and Loss Account 3,20,000
To Preliminary expenses 1,50,000
To Capital reserve 1,00,000
(Items written off against capital reduction
account and the balance transferred to capital
reserve)

18. Valuation balance sheet

In order to ascertain the profit / Loss of Life insurance Company , the net liability is compared
with Life Assurance Fund. Valuation Balance Sheet may be defined as a statement
prepared to ascertain the excess of life assurance fund over net liability on existing polices
(Surplus/ Profit) or excess of net liability on existing polices over life assurance fund (Deficit or
loss). It is prepared once in two years.

Valuation balance she et of ------ -- Company Ltd. -------

Particulars Amount As on Particulars Amount
To Net liability as per By life assurance Xxx
actuarial valuation Xxxx Fund By deficiency Xxx
To Surplus Xxxx
xxxxx Xxxx

19. Other liabilities and provision

As on----- As on -----
(Current year (previous year)
I. Bills payable
II. Inter-office adjustments (net)
III. Interest Accrued
IV. Others (including provisions)
TOTAL

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20 Format of Profit and loss account
As per Sec. 29 Form A Balance sheet as on -----

Schedul Current Previous

e No. Year Year
Capital and Liabilities
Capital 1
Reserves & Surplus 2
Deposits 3
Borrowings 4
Other Liabilities and Provisions 5
Total
Assets
Cash and balances with Reserve Bank of India 6
Balance with banks and money atcall and short 7
notice
Investments 8
Advances 9
Fixed Assets 10
Other Assets 11
Total
Contingent liabilities
Bills for collection

Format of Profit and loss account As per Sec. 29 Form B

PROFIT AND LOSS ACCOUNT for the year ended 31st March

ScheduleCurrent Previous
No. Year Year
1. Income
Interest earned 13
Other income 14
Total
II. Expenditure
Interest expended 15
Operating expenses 16
Provisions and contingencies
Total
III. Profit/Loss
Net Profit/Loss (-) for the year
Profit/Loss (-) brought forward
Total
IV. Appropriations
Transfer to statutory reserves
Transfer to other reserves
Transfer to Govt/proposed dividend
Balance carried over to Balance Sheet
Total
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21. Pass the journal entries for the assets and liabilities taken over by the new company,
liquidation expenses met by Transferee Company, Preliminary expenses of the new
company and purchase consideration due in the books of new company

To provide a complete answer, we would need more information about the specific transaction
and the nature of the assets and liabilities being taken over. However, we can provide a general
overview of how to approach journal entries in this situation.

When a new company takes over assets and liabilities from another company, it typically
records these transactions using the following journal entries:

1. To record the assets taken over:

Dr. Assets taken over

Cr. Liabilities assumed

2. To record the liquidation expenses paid by the transferee company:

Dr. Liquidation expenses

Cr. Cash/Bank

3. To record the preliminary expenses of the new company:

Dr. Preliminary expenses

Cr. Cash/Bank

4. To record the purchase consideration due:

Dr. Assets taken over

Cr. Purchase consideration

The specific accounts and amounts involved in each entry will depend on the details of the
transaction. It is recommended that you consult with a professional accountant or financial
advisor to ensure that the entries are properly recorded in accordance with applicable
accounting standards and regulations.

22. Distinguish between Member's and Creditor's voluntary winding up.

Creditor's Voluntary Winding

Criteria Member's Voluntary Winding Up Up
Initiation Initiated by the shareholders Initiated by the company's board
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of directors
Objective Company is solvent and able to pay Company is insolvent and unable
its debts to pay its debts
Appointment Liquidator is appointed by the Liquidator is appointed by the
of liquidator shareholders creditors
Meeting of A meeting of shareholders is A meeting of creditors is required
shareholder required to pass a resolution for to pass a resolution for winding up
s winding up
Declaration The directors must make a No declaration of solvency is
of solvency declaration of solvency confirming required
that the company can pay its debts
within 12 months
Effect on The company ceases to trade and The company ceases to trade and
company its assets are liquidated to pay off its its assets are liquidated to pay off
debts its debts
Effect on Any surplus assets after paying off Shareholders may receive nothing
shareholder creditors are distributed among the if there are insufficient assets to
s shareholders pay off creditors

23. What are the registers and books of an insurance companies?

Insurance companies are required to maintain various registers and books to ensure proper
recording and management of their financial transactions. Here are some of the key registers
and books that insurance companies typically maintain:

Register of policies: This register contains information about all the policies issued by the
insurance company, including policyholder details, policy term, sum insured, premiums paid,
and claims made.

Register of claims: This register contains information about all the claims made by
policyholders, including the date of the claim, the amount claimed, and the status of the claim.

Cashbook: This book records all the cash transactions of the insurance company, including
cash received from premiums, investments, and other sources, as well as cash payments made
for claims, expenses, and investments.

Ledger: This book contains a record of all the transactions in the form of accounts, including
assets, liabilities, income, and expenses.

Investment register: This register contains information about the investments made by the
insurance company, including details of the securities purchased, the amount invested, and
the returns earned.

Reinsurance register: This register contains information about the reinsurance arrangements
made by the insurance company, including details of the policies reinsured, the amount of
reinsurance, and the reinsurer.

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Register of agents: This register contains information about all the agents appointed by the
insurance company, including their names, addresses, and commission rates.

These registers and books help insurance companies to maintain accurate and complete
records of their financial transactions, which are essential for effective management and
compliance with regulatory requirements.

24. What is life assurance fund?

Life Assurance Fund is a term used in the insurance industry to refer to the pool of funds set aside by
a life insurance company to meet its long-term obligations to policyholders.

When an individual purchases a life insurance policy, they pay a premium to the insurance company.
The insurance company pools these premiums together to create the Life Assurance Fund. The
company then invests this fund in various investment instruments like stocks, bonds, and other fixed
income securities to generate income.

The Life Assurance Fund is primarily used to pay out benefits to policyholders upon the occurrence of
a specific event, such as the death of the policyholder or the maturity of the policy. The insurance
company must ensure that it has sufficient funds in the Life Assurance Fund to meet all of its current
and future obligations to policyholders. This means that the company must carefully manage the fund's
investments to ensure that it generates enough income to meet these obligations.

25. Explain principles of insurance

The principles of insurance are a set of guidelines that insurance companies follow to ensure
that insurance policies are fair, reliable, and effective. The principles of insurance are as
follows:

Utmost Good Faith: This principle requires both the insurer and the insured to provide all
relevant information to each other before the insurance policy is issued. This is to ensure that
both parties have a clear understanding of the risks and liabilities involved.

Insurable Interest: This principle states that the insured must have an insurable interest in the
subject matter of the insurance policy. This means that the insured must have a financial
interest in the item or property being insured and would suffer a financial loss if it were damaged
or destroyed.

Indemnity: This principle ensures that the insured is compensated for the loss suffered, but
only up to the amount of the loss. The objective of insurance is to put the insured back in the
same financial position as they were in before the loss occurred. Insurance companies do not
intend to profit from a claim.

Contribution: This principle applies when an insured item is covered by more than one
insurance policy. If a loss occurs, each insurer will contribute proportionately to the amount of
coverage they have provided. This ensures that the insured does not receive more than the
actual amount of the loss.

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Subrogation: This principle allows the insurer to take over the rights of the insured to recover
losses from third parties. For example, if an insured car is damaged by another driver, the
insurance company may seek reimbursement from the other driver's insurance company.

Proximate Cause: This principle states that the insurance company will only cover losses that
are caused directly by the insured event. For example, if a house is damaged by a fire, the
insurance company will cover the damage caused by the fire, but not damage caused by water
used to put out the fire.

26. The difference between Life Insurance and General Insurance:

Life Insurance:

- Provides financial protection to the policyholder's family in case of his/her untimely death.

- Pays a lump sum amount or regular payments to the beneficiaries of the policyholder upon
his/her death.

- The premium paid towards the policy is based on the age, health, and lifestyle habits of the
policyholder.

- The policy may also offer additional benefits such as tax savings, loan facilities, and coverage
against critical illnesses.

General Insurance:

- Provides financial protection against losses or damages to property, health, and assets.

- Covers a wide range of risks such as fire, theft, accidents, medical expenses, and natural
disasters.

- The premium paid towards the policy is based on the type of coverage, risk factors, and other
relevant factors.

- The policy may also offer additional benefits such as coverage for legal expenses, loss of
income, and personal accident.

27. Prepare format of revenue account, profit and loss account and balance sheet of general
insurance companies with imaginery figures

 Revenue Account (Form A‐RA)

Revenue Account is prepared as per the provisions of IRDA regulations 2002 and complies with
the requirements of Schedule A as follows:
FORM A – 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 (Technical Account)
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No Particulars Schedule Current Year Previous Year
(Rs.’000) (Rs.’000)
Premiums earned – net
(a) Premium 1
(b) Reinsurance ceded
(c) Reinsurance accepted
Income from investments
(a) Interest, dividends & rent – Gross
(b) Profit on sale/redemption of
investments
(c) (Loss on sale/redemption of
investments)
(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
Provisions (other than taxation)
(a) For diminution in the value of
investments (net)
(b) Others (to be specified) Total (B) 2
Benefits Paid (Net) Interim Bonuses paid
Change in valuation of liability in respect 3
of life policies
(a) Gross**
(b) Amount ceded in Reinsurance
(c) Amount accepted in Reinsurance
Total (C)
Surplus (Deficit) (D)=(A)‐(B)‐(C)
Appropriations
Transfer to Shareholders’ Account 4
Transfer to Other Reserves (to be
specified) Balance
being Funds for Future Appropriations
Total (D)

Profit And Loss Account (Form A‐PL)

The P&L A/c is prepared to calculate the overall profit of the life insurance
business. The incomes or expenses that are not related to any particular fund are
recorded in the P&L A/c.

FORM A ‐ PL

Name of the insurer

Registration No. and Date of Registration with the IRDA

Profit and Loss Account for the year ended 31 March, 20….
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Shareholders’ Account (Non‐technical Account)
No. Particulars Schedul Current Year Previous Year
e (Rs.’000) (Rs.’000)
Amounts transferred from/to the
Policyholders Account (Technical
Account )
Income from investments
(a) Interest, dividends & 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 debts written
off Provision for tax
Provisions (other than taxation)
(a) For diminution in the value
of investments (net)
(b) Provision for doubtful debts
(c) Others (to be specified) Total
(B)
Profit (Loss) before
tax Provision for
taxation
Appropriations
(a) Balance at the beginning of
the year
(b) Interim dividends paid during
the year
(c)Proposed final dividend
(d) Dividend Distribution Tax
(e) Transfer to Reserves/other
accounts (to be specified)
Profit carried ............... to the Balance
Sheet
Notes to Form A‐RA and A‐PL:
(a) Premium income received from business concluded in and outside India shall be separately
disclosed.
(b) Reinsurance premiums whether on business ceded or accepted are to be brought into
account gross (i.e., before deducting commissions) under the head reinsurance premiums
(c) Claims incurred shall comprise claims paid, specific claims settlement costs wherever
applicable and change in the outstanding provisions for claims at the year‐end.
(d) 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.

(e) Fees and expenses connected with claims shall be included in claims.
(f) Under the sub‐head “Others” shall be included items like foreign exchange gains or losses and
other items.
(g) Interest, dividends and rentals receivable in connection with an investment should be stated
at gross amount, the amount of income tax deducted at source being included under
“advance taxes paid and taxes deducted at source”.
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(h) Income from rent shall include only the realized rent. It shall not include any notional rent.

Balance Sheet (Form A‐BS)

Balance Sheet of Life Insurance Company is prepared in vertical format. The form of
Balance Sheet is as follows:
No Particulars Schedul Current Year Previous Year
(Rs.’000) (Rs.’000)
Sources of Funds
Shareholders’ Funds:
Share Capital Reserves
and Surplus 5
Credit/[Debit] Fair Value Change Account 6
Sub‐Total Borrowings
Policyholders’ Funds:
Credit/[Debit] Fair Value Change Account
Policy Liabilities 7
Insurance Reserves
Provision for Linked Liabilities
Sub‐Total
Funds for Future Appropriations
Total
Application of Funds
Investments
Shareholders’
Policyholders’
Assets held to Cover 8
Linked Liabilities 8A
Loans 8B
Fixed Assets 9
Current Assets 10
Cash and Bank Balances
Advances and Other 11
Assets Sub‐ Total (A) 12
Current Liabilities
Provisions 13
Sub‐ Total (B ) 14
Net Current Assets
(C)=(A)‐ (B)
Miscellaneous
Expenditure (to the extent 15
not written off or
adjusted)
Debit Balance in Profit
and Loss Account
(Shareholders’ Account)
Total

SCHEDULES FORMING PART OF FINANCIAL STATEMENTS

SCHEDULE 1 ‐ PREMIUM
No Particulars Current Year Previous Year

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(Rs.’000) (Rs.’000)

First Year Premiums

Renewal
Premiums
Single Premiums
Total Premium

28. Prepare format of revenue account, profit and loss account and balance sheet of life
insurance companies with imaginery figures.

Revenue Account (Form A‐RA)

Revenue Account is prepared as per the provisions of IRDA regulations 2002 and complies with
the requirements of Schedule A as follows:
FORM A – 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 (Technical Account)
N Particulars Sched Current Previous Year
o ule Year (Rs.’000)
. (Rs.’000)
Premiums earned – net
(a) Premium 1
(b) Reinsurance ceded
(c) Reinsurance accepted
Income from investments
(a) Interest, dividends & rent – Gross
(b) Profit on sale/redemption of investments
(c) (Loss on sale/redemption of investments)
(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
Provisions (other than taxation)
(a) For diminution in the value of investments
(net)
(b) Others (to be specified) Total (B) 2
Benefits Paid (Net) Interim Bonuses paid
Change in valuation of liability in respect of life 3
policies
(a) Gross**
(b) Amount ceded in Reinsurance
(c) Amount accepted in Reinsurance
Total (C)
Surplus (Deficit) (D)=(A)‐(B)‐(C)
Appropriations
Transfer to Shareholders’ Account 4

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Transfer to Other Reserves (to be specified)
Balance
being Funds for Future Appropriations
Total (D)

Profit And Loss Account (Form A‐PL)

The P&L A/c is prepared to calculate the overall profit of the life insurance business. The
incomes or expenses that are not related to any particular fund are recorded in the P&L A/c.

FORM A ‐ PL

Name of the insurer

Registration No. and Date of Registration with the IRDA

Profit and Loss Account for the year ended 31 March, 20….
Shareholders’ Account (Non‐technical Account)
No. Particulars Schedul Current Year Previous Year
e (Rs.’000) (Rs.’000)
Amounts transferred from/to the
Policyholders Account (Technical
Account )
Income from investments
(a) Interest, dividends & 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 debts written off
Provision for tax
Provisions (other than taxation)
(a) For diminution in the value of
investments (net)
(b) Provision for doubtful debts
(c) Others (to be specified) Total
(B)
Profit (Loss) before tax
Provision for taxation
Appropriations
(a) Balance at the beginning of the
year (b) Interim dividends paid during
the year (c)
Proposed final dividend
(d) Dividend Distribution Tax
(e) Transfer to Reserves/other
accounts (to be specified)
Profit carried...................to the Balance Sheet

Balance Sheet (Form A‐BS)

Balance Sheet of Life Insurance Company is prepared in vertical format. The form of Balance
Sheet is as follows:

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No. Particulars Sched Current Previous
ul Year Year
(Rs.’000) (Rs.’000)
Sources of Funds
Shareholders’ Funds:
Share Capital Reserves
and Surplus 5
Credit/[Debit] Fair Value Change Account 6
Sub‐Total Borrowings
Policyholders’ Funds:
Credit/[Debit] Fair Value Change Account
Policy Liabilities 7
Insurance Reserves
Provision for Linked Liabilities
Sub‐Total
Funds for Future Appropriations
Total
Application of Funds
Investments
Shareholders’
Policyholders’
Assets held to Cover 8
Linked Liabilities 8A
Loans 8B
Fixed Assets 9
Current Assets 10
Cash and Bank Balances
Advances and Other 11
Assets Sub‐ Total (A) 12
Current Liabilities
Provisions 13
Sub‐ Total (B ) 14
Net Current Assets
(C)=(A)‐ (B)
Miscellaneous
Expenditure (to the extent 15
not written off or
adjusted)
Debit Balance in Profit
and Loss Account
(Shareholders’ Account)
Total

29. What are the registers and books of banking companies?

Banking companies are required to maintain a number of registers and books to comply with
legal and regulatory requirements, and to keep track of their financial transactions. Some of
the key registers and books that banking companies are required to maintain include:

Register of Deposits: This register contains information about the deposits received from
customers, including the name of the depositor, the date of deposit, the amount deposited,
and the account number.
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Cash Book: This book records all cash transactions made by the bank, including deposits,
withdrawals, and payments.

Ledger: The ledger is a book that records all the transactions of the bank, including deposits,
withdrawals, loans, and investments.

Journal: The journal is used to record all financial transactions that do not involve cash, such
as transfers between accounts.

Register of Advances: This register contains information about loans and advances made
by the bank, including the name of the borrower, the amount of the loan, the interest rate, and
the repayment schedule.

Register of Securities: This register contains information about the securities held by the
bank, including the type of security, the quantity, and the market value.

Register of Fixed Assets: This register contains information about the fixed assets owned
by the bank, such as buildings, furniture, and equipment.

Register of Investments: This register contains information about the investments made by
the bank, such as shares, bonds, and other securities.

30. Explain slip system of posting and its advantages and disadvantages etc.....

The Slip System of Posting is a manual method of accounting where transactions are
recorded on small pieces of paper or slips instead of in a ledger. These slips are then posted
or transferred to the appropriate account in the ledger.

Advantages of Slip System of Posting:

Flexibility: The Slip System of Posting is a flexible method of accounting as new accounts
can be easily created and existing ones can be modified without the need to rewrite the entire
ledger.

Easy to Understand: This method of posting is easy to understand as the transactions are
recorded on slips with all the relevant details such as the date, description, amount, and
account name.

Error Correction: Errors can be easily corrected in the slip system of posting. If a transaction
is posted to the wrong account, it can be easily corrected by moving the slip to the correct
account.

Time-saving: This method of posting is relatively faster than the traditional method of posting
as the transactions are recorded on slips and then posted to the ledger.

Disadvantages of Slip System of Posting:

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Risk of Losing Slips: As the transactions are recorded on slips, there is a risk of losing or
misplacing them, which can cause problems in reconciling the accounts.

Difficult to Retrieve: Retrieving information from the slip system of posting can be difficult as
the slips are not organized in a specific manner.

Requires Frequent Transfer: The slips have to be frequently transferred from the
transaction file to the ledger, which can be time-consuming.

Manual Process: The Slip System of Posting is a manual process that requires more effort
and is prone to errors compared to computerized accounting systems.

31. Explain asset classification and provisiond regarding various assets. What is
rebate on bills discounted?

Asset classification and provisioning are important aspects of corporate accounting, as they
ensure that a company's financial statements accurately reflect the value of its assets and
liabilities.

Asset classification involves categorizing a company's assets into different groups based on
their characteristics, such as their liquidity, recoverability, and expected holding period. This
helps to provide a better understanding of the composition of the company's assets, and
allows for more informed decision-making by management and other stakeholders.

Provisioning, on the other hand, refers to the process of setting aside a portion of a
company's profits to cover potential losses on its assets. This is done in order to ensure that
the company has sufficient funds to cover any losses that may arise due to default or other
unforeseen circumstances.

There are various methods of asset classification and provisioning, and these can differ
depending on the specific type of asset in question. For example, provisions for bad debts are
typically made for accounts receivable, while provisions for depreciation are made for fixed
assets such as buildings and equipment.

One specific type of asset that may require special consideration is bills discounted. This
refers to bills of exchange or promissory notes that are sold to a bank or other financial
institution at a discount in order to obtain immediate cash. The discount represents the
interest that the bank will earn on the bill over its holding period.

In terms of accounting treatment, bills discounted are typically classified as short-term assets,
and a provision may be made to cover potential losses if the bills are not paid when they
come due. If the bills are paid on time, the bank will receive the full face value of the bill, and
the company will receive a rebate on the discount that was initially paid.

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32. Prepare format of revenue account and balance sheet of banking companies with
imaginery figures.

Revenue Account Current Year Previous Year

Interest Income
Fee Income
Commission Income
Trading Income
Other Operating Income
Total Operating Income
Interest Expenses
Operating Expenses
Total Operating Expenses
Profit Before Tax
Income Tax Expense
Net Profit After Tax

(000’s omitted)

Schedule As on 31-3-......... As on 31-3-.........

(Current year) (Previous year)
Capital and Liabilities:
Capital 1
Reserves and Surplus 2

Deposits 3

Borrowings 4

Other liabilities and provisions 5

Total
Assets

Cash and balances with Reserve 6

Bank of India
Balance with banks and money at call 7
and short notice
Investments 8

Advances 9

Fixed Assets 10

Other Assets 11

Total
Contingent liabilities 12

Bills for collection

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33. What are the objectives of internal reconstruction?

Internal reconstruction is a process by which a company restructures its financial and

organizational structure without liquidating the company or transferring ownership to external
parties. The primary objectives of internal reconstruction are as follows:

To improve the company's financial position: The primary objective of internal reconstruction
is to improve the company's financial position by reducing or eliminating accumulated losses,
liabilities, or inefficiencies in the company's operations.

To enhance profitability: Internal reconstruction aims to enhance profitability by optimizing

the use of the company's resources, improving the quality of its products or services, or
restructuring its business operations to better meet customer needs.

To streamline operations: Another objective of internal reconstruction is to streamline the

company's operations by eliminating redundancies, consolidating departments, and
reorganizing business processes to increase efficiency.

To provide financial flexibility: Internal reconstruction can provide financial flexibility by

converting debt into equity or restructuring the company's debt obligations to make them
more manageable.

To improve shareholder value: Internal reconstruction can increase shareholder value by

improving the company's financial performance, enhancing the quality of its products or
services, or unlocking hidden value in the company's assets.

34. Explain the procedure of reduction of share capital?

The reduction of share capital is the process by which a company reduces the total amount of
its share capital. This can be done for a variety of reasons, such as to return excess capital to
shareholders, to adjust the capital structure of the company, or to cover losses or liabilities.

The procedure for reducing share capital generally involves the following steps:

Check the articles of association: The first step is to review the company's articles of
association to determine whether they allow for the reduction of share capital. If the articles
do not allow for this, they will need to be amended.

Obtain shareholder approval: Shareholders must approve the reduction of share capital
through a special resolution passed at a general meeting. The resolution must specify the
amount of the reduction and the reason for it.

Obtain court approval: If the company is a public company, or if the reduction will result in
the cancellation of any shares, court approval will be required. The company must file an
application with the court, which will consider the application and either approve or reject it.

Publish notice: Once the shareholder and court approvals have been obtained (if
necessary), the company must publish notice of the reduction in a prescribed form and

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manner. This is to ensure that creditors and other interested parties are aware of the
reduction and have an opportunity to object.

Creditors' objections: Creditors have a right to object to the reduction within a specified
period, usually not less than 28 days. If objections are received, the court may decide to
reject the application or impose conditions on the reduction.

File with registrar: Finally, once all approvals have been obtained and any objections have
been addressed, the company must file the necessary documents with the Companies House
or Registrar of Companies to effect the reduction of share capital.

35. What are the different methods of internal reconstruction?

Internal reconstruction refers to the process of reorganizing a company's capital structure,

without winding up the company. There are several methods of internal reconstruction,
including:

Alteration of share capital: This method involves changing the structure of a company's share
capital, such as reducing the nominal value of shares, consolidating or dividing shares, or
converting shares into a different class.

Conversion of shares into stock: This involves converting the company's existing shares into
stock, which is a form of capital that is not divided into shares. This method can simplify the
company's capital structure and make it more flexible.

Writing off capital losses: This method involves writing off the company's accumulated
losses against its share capital. This reduces the company's liabilities and may improve its
financial position.

Redemption of preference shares: This involves redeeming the company's preference

shares, which may be done through the issue of new shares, or by using reserves or other
sources of funds.

Purchase of own shares: This method involves the company buying back its own shares,
either from existing shareholders or from the market. This reduces the number of shares in
circulation and can improve the company's earnings per share.

35. Difference between amalgamation and internal reconstruction?

Amalgamation refers to the process of two or more companies merging to form a new
company or becoming a subsidiary of an existing company. In an amalgamation, the assets
and liabilities of the companies involved are combined, and the shareholders of the
companies typically receive shares in the new or surviving company in exchange for their
existing shares. Amalgamation is often done to achieve economies of scale, gain access to
new markets, or to increase market share.

On the other hand, internal reconstruction refers to a process of reorganizing a company's

capital structure without involving other companies. This may involve writing off accumulated
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losses, reducing or cancelling share capital, or converting debt into equity. The aim of internal
reconstruction is to improve the financial position of the company, streamline its operations,
and make it more competitive.

36. What is consolidation and subdivision of shares?

Consolidation and subdivision of shares are two different corporate actions that can affect the
number and value of a company's outstanding shares.

Consolidation, also known as reverse stock split, is the process of reducing the number of
outstanding shares of a company by combining multiple shares into a single share. For
example, if a company has 10 million shares outstanding and it decides to consolidate its
shares on a 1:10 ratio, then each shareholder would receive one new share for every ten old
shares they previously held. After the consolidation, the company would have one million
shares outstanding instead of ten million, and the share price would increase proportionally to
reflect the reduced number of outstanding shares.

On the other hand, subdivision, also known as stock split, is the process of increasing the
number of outstanding shares of a company by dividing each existing share into multiple
shares. For example, if a company has 1 million shares outstanding and it decides to
subdivide its shares on a 1:2 ratio, then each shareholder would receive two new shares for
every old share they previously held. After the subdivision, the company would have 2 million
shares outstanding instead of 1 million, and the share price would decrease proportionally to
reflect the increased number of outstanding shares.

The main purpose of consolidation and subdivision of shares is to adjust the number and
value of outstanding shares to make them more attractive to investors or to meet the
requirements of the stock exchange. However, these actions do not affect the overall value of
the company or the ownership percentage of the shareholders.

37. What are the objectives of bussiness combination?

The primary objectives of business combination are:

Synergy: One of the key objectives of business combinations is to achieve synergy, which
means the combined entity can achieve greater efficiency, reduce costs, increase revenue,
and gain a competitive advantage through the pooling of resources, expertise, and
technology.

Diversification: Business combinations can provide companies with access to new markets,
customers, products, and services, allowing them to diversify their revenue streams and
reduce their dependence on a single market or product.

Economies of scale: By combining operations, businesses can achieve economies of scale,

which can lead to lower production costs and increased profitability.

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Improved financial performance: Business combinations can result in improved financial
performance, including increased revenue, earnings, and cash flow, as well as better return
on investment for shareholders.

Access to new technology and resources: Business combinations can provide companies
with access to new technologies, resources, and intellectual property, enabling them to
develop new products and services and stay ahead of competitors.

Enhanced market position: Combining businesses can also improve market position, which
can lead to increased market share, better pricing power, and improved customer loyalty.

38. Difference between amalgamation and absorption?

Criteria Amalgamation Absorption

Definition Two or more companies merge to
form a new company
Legal status All companies involved in the
of the amalgamation are dissolved and a
companies new company is formed
Transfer of All assets and liabilities of the
assets and amalgamating companies are
liabilities transferred to the new company
Shareholders Shareholders of all the amalgamating
of the companies become shareholders of
companies the new company in proportion to
their shareholdings in the
amalgamating companies
Accounting The assets and liabilities of the
treatment amalgamating companies are
recorded at their respective book
values in the books of the new
company
Tax The amalgamation may result in tax
implications liabilities for the new company and
the shareholders of the
amalgamating companies
Regulatory Approval from regulatory authorities
approvals may be required for the
amalgamation to take place
One company takes over and
absorbs another company
The absorbed company
ceases to exist and becomes
part of the absorbing company
All assets and liabilities of the
absorbed company are
transferred to the absorbing
company
Shareholders of the absorbed
company become
shareholders of the absorbing
company in proportion to the
terms of the acquisition
The assets and liabilities of the
absorbed company are
recorded at their fair market
values in the books of the
absorbing company
The absorption may result in
tax liabilities for the absorbing
company and the
shareholders of the absorbed
company
Approval from regulatory
authorities may be required for
the absorption to take place

39. Difference between amalgamation and acquisition?

Criteria Amalgamation Acquisition

Definition The merger of two or more The purchase of one company by
companies to form a new entity another, which becomes the new
owner
Nature of Two or more companies combine to One company takes over another
transaction form a new entity, which is distinct company, which becomes a
from the original companies subsidiary of the acquirer
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Ownership The ownership of the new entity is
shared among the original
companies in proportion to their
contribution
Legal The new entity is a new legal entity
status with its own identity, distinct from
the original companies
Accounting The assets, liabilities and reserves
treatment of the original companies are
transferred to the new entity at their
book value
Control The original companies have equal
control over the new entity
Approval The amalgamation must be
process approved by the shareholders of all
the original companies
The acquiring company becomes
the sole owner of the acquired
company
The acquired company continues
to exist as a legal entity, but is
now a subsidiary of the acquiring
company
The assets and liabilities of the
acquired company are recorded at
their fair value at the date of
acquisition
The acquiring company has
control over the acquired
company
The acquisition must be approved
by the shareholders of the
acquired company

40. What are the differenttypes of amalgamation?

In corporate accounting, amalgamation refers to the combination of two or more companies

to form a new entity or to merge one or more companies into an existing entity. There are four
different types of amalgamation, which are:

Amalgamation in the nature of merger:

In this type of amalgamation, two or more companies merge together to form a new entity. All
the assets, liabilities, and business of the amalgamating companies are transferred to the
new company, and the shareholders of the amalgamating companies become shareholders
of the new company in proportion to their shareholding.

Amalgamation in the nature of purchase:

In this type of amalgamation, one company acquires the business and assets of another
company in exchange for cash, shares, or other securities. The acquired company ceases to
exist, and its shareholders receive cash, shares, or other securities in exchange for their
shares in the acquired company.

Amalgamation of equals:

In this type of amalgamation, two or more companies of similar size and strength merge to
form a new entity. The assets, liabilities, and business of the amalgamating companies are
transferred to the new company, and the shareholders of the amalgamating companies
become shareholders of the new company in proportion to their shareholding.

Reverse amalgamation:

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In this type of amalgamation, a larger company merges with a smaller company. The assets,
liabilities, and business of the smaller company are transferred to the larger company, and
the shareholders of the smaller company become shareholders of the larger company in
proportion to their shareholding.

41. Differnce between pooling of interest method and purchase method

Pooling of Interest
Criteria Method Purchase Method
Treatment Combined at historical Recorded at fair market value
of assets values
and
liabilities
Treatment Not recognized Recognized as an intangible asset
of goodwill
Treatment Directly expensed in the Allocated and capitalized over time
of period incurred
expenses
Treatment No new shares issued; New shares are issued, and the acquiring
of shares existing shares of both company owns all of the outstanding
companies are combined shares of the acquired company
Impact on Little to no impact on Significant impact on income statement;
financial income statement; balance sheet items are recorded at fair
statements balance sheet items are value, leading to higher reported earnings
combined and assets
Applicability Generally only used in Generally used in acquisitions where one
mergers between company is significantly larger than the
companies of similar size other
and industries
42. Difference between liquidation and insolvency.

Criteria Liquidation Insolvency

Meaning Process of winding up a
company's affairs and
distributing its assets to pay off
its debts
Objective To sell off the company's
assets and use the proceeds
to pay off creditors
Initiator Can be initiated voluntarily by
the company's shareholders or
creditors, or through a court
order
Process Involves the appointment of a
liquidator to take control of the
company and sell off its assets
Outcome for The company ceases to exist
the company once its affairs are wound up
State of being unable to pay debts as
they fall due
To negotiate a payment plan with
creditors or seek protection from
them through legal processes
Usually initiated by the company's
directors or a creditor
Involves negotiations with creditors,
and may involve seeking legal
protection such as a Company
Voluntary Arrangement (CVA) or
Administration
The company may continue to trade
after negotiating a payment plan or

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Criteria Liquidation
and all creditors have been
paid off
Outcome for Shareholders may receive a
shareholders share of any surplus assets
after creditors have been paid
off, but are usually left with
nothing
Insolvency
entering into a CVA or Administration
Shareholders may still retain
ownership of the company, but may
see a decrease in the value of their
shares

43. Who are preferential creditors?

Preferential creditors are a specific class of creditors who are given priority over other
creditors in the event of a company's liquidation or insolvency. These creditors have a higher
legal right to be paid before other creditors from the company's assets that are available for
distribution.

The preferential creditor status may vary depending on the country and the legal system.
However, in most countries, preferential creditors generally include:

Employees: Employee wages, salaries, and other benefits that are due for up to a certain
limit are usually given priority over other creditors.

Government agencies: In many cases, unpaid taxes owed to government agencies, such as
income tax, value-added tax (VAT), and goods and services tax (GST) are given priority over
other creditors.

Secured creditors: These are creditors who have a security interest, such as a mortgage or
a lien, in the company's assets. They are given priority over unsecured creditors.

Preferential suppliers: In some cases, suppliers who have supplied goods or services to the
company in the period immediately before liquidation are given priority over other creditors.

44. What is liquidators final statement of account, give format with imaginary figure.

At the time of Liquidation of a company, the liquidator realises all theassets and discharge the
liabilities and capital. The statement prepared to record to such receipts and payments is called
Liquidator’s Final Statement of Account. This statement is prepared after the affairs of the
company are fully wound –up .
FORM OF LIQUIDATOR’S FINAL STATEMENT OF ACCOUNT

Receipts ₹ Payments ₹
Cash in hand Xxx Secured creditors xxx
Cash at Bank Xxx Legal Charges (Liquidation xxx
expenses)

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Assets Realised: Liquidator’s Remuneration xxx
Marketable Securities Xxx Other Expenses on xxx
Liquidation
Bills Receivables Xxx Debenture Holders:
Trade Debtors Xxx Outstanding interest on xxx
debentures
Loans and Advances Xxx Debentures xxx
Stock in Trade Xxx Preferential Creditors xxx
Work in progress Xxx Unsecured Creditors xxx
Land and Building Xxx Calls in advance, if any xxx
Plant & Machinery Xxx Arrears of dividend on xxx
cumulative Preference
shares
Furniture and Fixture Xxx Preference shareholders xxx
Patents, Trade marks Xxx Equity Shareholders xxx
Investments Xxx
Surplus realised from Xxx
secured Creditors (if any)

Calls in arrears Xxx

Amount received from Xxx
calls on shares

Total Xxx Total xxx

45. Explain different types of winding up.

Compulsory winding up: This type of winding up occurs when a company is insolvent,
which means it is unable to pay its debts as they fall due. In this case, any creditor of the
company can apply to the court for a winding-up order, which will ultimately result in the
company being liquidated and its assets being sold to pay off its debts.

Voluntary winding up: Voluntary winding up occurs when a company decides to wind up its
affairs and cease its business operations. This can happen in two ways:

a. Member's voluntary winding up: This type of winding up is initiated by the shareholders of
the company when they believe that the company has achieved its objectives or has become
unprofitable. The company must be solvent, which means that it is able to pay its debts as
they fall due, and a declaration of solvency must be made by the directors. A liquidator is
appointed by the shareholders to sell the company's assets and distribute the proceeds to the
shareholders.

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b. Creditor's voluntary winding up: This type of winding up is initiated by the board of directors
when they believe that the company is insolvent and unable to pay its debts. The directors
must convene a meeting of creditors, who then appoint a liquidator to sell the company's
assets and distribute the proceeds to the creditors.

Members' voluntary liquidation: This is a type of winding up that is similar to a member's

voluntary winding up, but it is specifically used by companies that are dormant or have
ceased trading. The process is simpler than a normal member's voluntary winding up and
does not require a declaration of solvency to be made.

Creditors' voluntary liquidation: This is a type of winding up that is similar to a creditor's

voluntary winding up, but it is specifically used by companies that are dormant or have
ceased trading. The process is simpler than a normal creditor's voluntary winding up and
does not require a meeting of creditors to be held.

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