IC46 - General Insurance A_c Preparation Mock Test 18
These questions cover internal audit, insurance accounting, depreciation, leases, reinsurance, claims provisions, and cash-flow statements. Internal audit objectives include risk analysis, special investigations, and compliance with financial orders. Reserve for unexpired risk is an important insurance accounting provision. The questions also test calculation of gain on disposal of machinery and understanding of salvage value. Internal control and auditing responsibilities are important areas of governance. Lease classification depends on the transfer of risks and rewards of ownership. Other topics include the relationship between transactions and events, reinsurance broker commissions, IBNR/IBNER provisions based on actuarial advice, and similarities between direct and indirect cash-flow methods.
1. Which of the following are objectives of internal audit?
a) Analyse various risk factors
b) Carry out special investigation
c) Ensure observance of financial orders
d) All of the above
2. Reserve for unexpired risk is made at ______ for marine business and ______ for other classes of business.
a) 100% of net premium, 50% of the net premium
b) 50% of net premium, 100% of the net premium
c) 100% of the claims accepted, 50% of the claims accepted
d) 50% of the claims accepted, 100% of the claims accepted
3. Sanjay bought a machine for Rs.18,750. He paid for the new machine by taking out a loan of Rs.8,000 and trading in his old machine. The old machine originally cost Rs.8,500 and had been depreciated by Rs.4,148 at the time of the trade-in. What is the gain on disposal of the old machine?
a) Rs.398
b) Rs.102
c) Rs.648
d) Rs.500
4. What refers to the internal auditor's primary duty to examine and evaluate the adequacy and effectiveness of the system of internal control and to assess the quality of performance in carrying out assigned responsibilities?
a) Corporate governance
b) Risk management
c) Internal control process
d) Auditing management
5. A lease is classified as a ______ if it does not transfer substantially all the risks and rewards incidental to ownership.
a) Finance lease
b) Operating lease
6. All transactions are not events but all events are transactions. Say whether True or False.
a) True
b) False
7. The percentage commission paid by the reinsurers to the reinsurance brokers is relatively small in comparison to the commission paid to the insurance brokers. Say whether True or False.
a) True
b) False
8. Which of the following is also known as scrap value or residual value?
a) Salvage value
b) Asset value
c) Depreciation value
d) Machinery value
9. Provision of IBNR/IBNER is based on the advice of:
a) Management
b) Actuary
c) Shareholders
d) Auditors
10. Cash flows from investing activities and financing activities will be the same under the direct and indirect method. Say whether True or False.
a) True
b) False
