Reserve for unexpired risks

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Reference no: EM13938964

The following trial balance was extracted from the books of Bima Insurance Ltd. as at 30 June 2006.

 

 

 

Sh.'000'

Sh.'000'

Net earned premiums:

Fire

 

 

139,668

 

Motor

 

 

259,456

Net commissions:

Fire

 

3,466

 

 

Motor

 

6,938

 

Net earned paid:

Fire

 

55,784

 

 

Motor

 

111,562

 

Net claims outstanding as at 1 July 2005:

Fire

 

 

72,036

 

Motor

 

 

144,074

Management expenses to be charged to revenue accounts

 

 

155,108

 

Management expenses not to be charged to revenue accounts

 

 

20,000

 

Bad debts

 

 

5,000

 

Treasury bills

 

 

199,100

 

Treasury bonds

 

 

11,386

 

Deposits in banks

 

 

474,100

 

Motor vehicles (net book value-1 July 2005)

 

 

1,000

 

Equipment (Net book value - 1 July 2005)

 

 

14,414

 

Amounts due to other insurance companies

 

 

 

4,000

Amounts due from other insurance companies

 

 

6,940

 

Bank overdraft

 

 

 

16,000

Share capital

 

 

 

120,000

Investment income

 

 

 

72,000

Other income

 

 

 

17,564

Revaluation reserves

 

 

 

50,000

Retained earnings as at 1 July 2005

 

 

 

30,000

Unearned premium reserves as at 1 July 2005:

Fire

 

 

40,000

 

Motor

 

 

100,00

 

 

 

1,064,798

1,064,798

Additional information:

1. Management expenses are to be apportioned to revenue accounts on the basis of net earned premiums.

2. The management made the following estimates as at 30 June 2006:

 

Sh.'000'

Net claims outstanding: Fire 90,000

Motor 158,000

3. Reserve for unexpired risks as at 30 June 2006 is to be maintained at 50% of the respective net earned premiums for both the fire and motor businesses.

4. Depreciation on motor vehicles and equipment is to be provided using the reducing balance method at the rates of 20% and 10% per annum respectively.

Required:

(i) Revenue accounts for the year ended 30 June 2006.

(ii) Profit and loss account for the year ended e0 June 2006.

Reference no: EM13938964

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