Question

This is an Insurancce Accounting Question

Excelsior Life Insurance Co. Ltd

The Company has 15 whole life policies

1) i. Five policies each has annual premium of $15,000.00 paid monthly. In 2016, 2 of these policies did not make the premium payment for November and 1 did not make the payment for December. They all however had adequate cash surrender values to cover the missing payments.

ii. Six of the other policies had $14,000.00 annual premium paid on a monthly basis. As at December 31st onlt 3 had paid the December Premium which was due on December 30th.

iii. The Premium on the remaining 4 policies with $25,000.00 annual premium each, were all paid when due

iv. The company pays out 4% of the premiums for reinsurance coverage.

2) i. Commissions due on all policies amounted to 10% of premiums; as at December 31st 90% of the commissions had been paid

ii.Commissions on the reinsurance ceded amounted to 2% of the reinsurance premiums paid; they are usually received 3 months in arrears

iii. Investment income earned for the year totalled $20,000.00; 30% has not yet been received.

iv. Management expenses allocated to the life portfolio amounted to $11,000.00 for the year

v. A claim of $50,000.00 was paid in respect of a policyholder who has died on November 18th 215

3. The closing fund balance increased by 2% to reach $22,000.00

Required:

1) Prepare journal entries for all transactions

2) Show the premium account (s) as at December 31st

3) Prepaare the revenue account for 2016

Answer 1

1.Bank A/c Dr    72,500 .00 (3*1250*12)+(2*1250*11)

To Premium income A/c    72,500.00

(Being Premium recevied on annual premium of 15,000 for 5 policies)

Bank A/c Dr    38,500 .00 (3*1166.66*11)

To Premium income A/c    38,500.00

(Being Premium recevied on annual premium of 14,000 for 3 policies)

Bank A/c Dr    1,00,000 .00 (4*25000)

To Premium income A/c    1,00,000.00

(Being Premium recevied on annual premium of 25,000 for 4 policies)

Reinsurance Ceded A/c Dr    8,440(100000+38500+72500)*4/100

To Bank A/c    8,440

(Being reinsurance premium paid)

Commision A/c Dr 18,990 {(100000+38500+72500)*10/100}*90/100

To Bank A/c 18,990

(Being 90 % of commision paid)

Commission receivable A/c Dr    11

To Commission A/c 11

(Being commision receivable for 3 months in arrear)

Working Note: Premium for 3 months = (1250+1166.66+2083.33)*3

= 13500

Re insurance Premium =4% of 13500=540

Commission receivable =2% of 540=10.8 rounded off to 11.

Bank A/c Dr    14000

To Investment Income 14000

(Being 70% of the investment income received)

Management Expenses A/c Dr    11000

To Bank A/c 11000

(Being management expenses incurred)

Death Claim A/c Dr 50,000

To Bank A/c    50,000

(Being Death claim paid)

2.Premium A/c as on 31.12.2015= 100000+38500+72500-8840

=2,02,160

3.Revenue Account= 1,36,170