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Question

Indian Insurance Co. Ltd. on 31.12.20X1 had reserve for unexpired risk of 20 crores in respect of fire insurance business. During 20X2, the premium collected in respect of policies issued 43.70 crores. Pass journal entry.

A Fire Revenue A/c Dr. 23.7 To Unexpired Risks Reserve A/c 23.7 Correct Answer Incorrect Answer
B Fire Revenue A/c Dr. 1.85 To Unexpired Risks Reserve A/c 1.85 Correct Answer Incorrect Answer
C Unexpired Risks Reserve A/c 1.85 To Fire Revenue A/c Dr. 1.85 Correct Answer Incorrect Answer
D Unexpired Risks Reserve A/c 23.7 To Fire Revenue A/c Dr. 23.7 Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

According to the requirements of the Insurance Act, it is sufficient if the provision is made for unexpired risks at 50 per cent for Fire, Marine Cargo and Miscellaneous business; 1.85 crore being the difference between closing provision of 21.85 crores [(43 + 5 – 4.3) * 50%] and opening provision of 20 crores charged to fire revenue account.

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