IC46 - General Insurance A_c Preparation Mock Test 04
This IC46 section covers important areas of general insurance accounting, reinsurance, depreciation, company law, and financial reporting. It includes calculation of changes in unexpired risk reserves and incurred claims net for marine insurance business. Corporate concepts such as holding companies, materiality of information, and eligibility for Employee Stock Option Schemes (ESOS) are also covered. Reinsurance arrangements, including facultative obligatory treaties, are discussed. The section also examines depreciation methods, Bank Reconciliation Statements, and depreciation calculations using the straight-line method. Finally, it addresses the standards and laws applicable to financial statement preparation by general insurance companies, including IRDAI regulations, the Insurance Act, Companies Act, and accounting standards.
1. Please see the data of Everlast Insurance Co. Ltd. for their marine insurance division:
- The reserves for the unexpired risk for marine insurance business was Rs. 28 crores as on 31st Dec 2017.
- The reserves for unexpired risk provision is as per the Insurance Act 1938.
- The premium collected from insured in respect of policies insured — Rs. 33 crores.
- The premium collected from other insurance companies — Rs. 12 crores.
- Premium paid/payable to other insurance companies on business ceded — Rs. 11 crores.
Consider this data and calculate the change in unexpired risk reserve account during the year.
A. Rs. 7.5 crores
B. Rs. 5 crores
C. Rs. 7 crores
D. Rs. 5.25 crores
E. Rs. 6 crores
2. When is a company said to be the holding company of another company?
A. When more than 50% of the preference share capital of the other company is held by the company
B. When the company appoints one director on the board of the other company
C. When more than 50% of the debt of the other company is held by the company
D. When less than 50% of the share capital of the other company is held by the company
E. When more than 50% of the share capital of the other company is held by the company
3. Fill in the blanks — Information about an item is ______ if its omission or misstatement can influence the financial decisions of users taken on the basis of this information.
A. Important
B. Significant
C. Material
D. Immaterial
E. Complete
4. As on 31 March 2017, the closing balances were as follows in respect of Marine Department in the books of Mega General Insurance Co. Ltd.:
- Claim Paid Direct — 24,000
- Claims on Reinsurance Ceded — 2,600
- Claims on Reinsurance Accepted — 4,000
- Outstanding Claims at the end — 28,000
What are the Incurred Claims Net?
A. Rs. 43,800
B. Rs. 53,400
C. Rs. 60,700
D. Rs. 48,100
E. Rs. 56,200
5. If a reinsurer is planning for a reinsurance contract where it is ready for obligatory acceptance of the reinsurance ceded, which type will it finally select?
A. Treaty insurance
B. Facultative obligatory treaty
C. General reinsurance
D. Combination treaty
E. Facultative reinsurance
6. Under __________ method of depreciation, the amount of depreciation is ascertained with reference to the present value of the capital investment or the original cost of the asset with the help of a logarithmic table.
A. Machine Hour Rate Method
B. Annuity Method
C. Reducing Balance Method
D. Straight Line Method
E. None of the above
7. Who is NOT eligible to participate in the ESOS?
- A director, who directly or indirectly holds more than 10% outstanding shares of the company
- An employee whose salary is less than Rs. 1 lakh per month
- Employees working outside India
A. Only 1
B. Only 2
C. Only 3
D. Both 1 and 2
E. All 1, 2 and 3
8. A cheque which was issued to Meena Trading Co. was recorded in the deposit column as Rs. 800. What will have to be done to ascertain the balance as per cash book?
A. Rs. 16,000 should be added to the balance as per the pass book
B. Rs. 8,000 should be added to the balance as per the pass book
C. Rs. 16,000 should be subtracted from the balance as per the pass book
D. Rs. 8,000 should be subtracted from the balance as per the pass book
E. None of the above
9. The following details were given by Mahesh in the financial statements for the year ended 31 Dec 2016:
- Machine purchased on 1st January 2012 — Rs. 56,000
- Installation expenses — Rs. 4,000
- Expected life of this machine — 10 years
- Depreciation charged on straight-line method
- Scrap value of the machine after 10 years — Rs. 5,000
Calculate the depreciation to be charged for the year 2016.
A. Rs. 48,500
B. Rs. 50,000
C. Rs. 55,000
D. Rs. 29,000
E. Rs. 63,550
10. Which of the following standards/laws need not be followed by the management of a General Insurance company while preparing the financial statements?
A. The IRDAI (Preparation of Financial Statements and Audit Report) Regulation 2002
B. Accounting Standards prescribed by IASB
C. The Companies Act 1956
D. The Insurance Act 1938
E. Accounting Standards prescribed by ICAI
