Accounting for Financial

Institutions
Lecture 17

By
Dr. Ahmed
Adel

Faculty of Commerce English Section

 Revision

Faculty of Commerce English Section

 Question 1:

The following balances appear in the accounting records of

the an insurance company (Life Assurance Branch) on June
30, 2016.
Claims Paid 67,500
Direct Insurance Premiums 900,000
General and administrative expenses 9,000
Net income from investment 200,000
Loss on Sale of securities 25,000
Medical centre expenses 20,000
Question 1:

Other expenses 9,000

Producers wages 50,000
Computer centre expenses 7,000
Reinsurance premiums ceded 30,000
Reinsurance premiums accepted 90,000
Reinsurance claims on premiums ceded 20,000
Reinsurance claims on premiums accepted 30,000
Reinsurance commission on premiums ceded 6,000
Reinsurance commission on premiums accepted 15,000
Issue Fees 5,000
 Question 1:

Additional Information:
1- Accruals on June 30, 2016

Insurance Premiums 19,000

Medical centre expenses 7,000
General and Administrative expenses 3,500
 Question 1:

Required:
1- Prepare the necessary adjusting entry.
2- Prepare the revenue and expense account of the life
branch for the year ended June 30, 2016.
 Question 1:

Solution:

a. Accrued Insurance Premiums

Debtors of insurance transactions
Premiums receivable 19,000
Total premiums (direct premiums) 19,000

b. Accrued Medical centre expenses

Production Costs
Production Expenses 7,000
Creditors and other credit balances 7,000
 Question 1:

c. Accrued General and Administrative expenses

General and Administrative expenses 3,500
Creditors and other credit balances 3,500
 Revenue and Expense Account for life
Assurance Branch
Expenses Revenues
Total Claims paid: Total premiums:
Direct claims 67,500 Direct premiums 919,000
Reinsurance claims on 30,000 Reinsurance premiums 90,000
premiums accepted accepted
(-) Reinsurance claims on (20,000) (-) reinsurance premium (30,000)
premiums ceded 77,500 ceded
979,000

Productions costs: Reinsurance commission 6,000

Producers wages and 65,000 on premiums ceded
benefits
Production expenses 27,000 Net income from 175,000
92,000 investments
Other revenues 5,000
 Revenue and Expense Account for life
Assurance Branch
Expenses Revenues
General and
Administrative Expenses 12,500
Computer centre
Expenses 7,000
Other expenses 9,000

Total expenses 198,000 Total revenues 1,165,000

Surplus 967,000
 Question 2:
The following are the transactions conducted by an
insurance company (Life Assurance Branch) during the
month of April 2016, and the company reinsures 20% of its
life policies with the Egyptian Reinsurance Company:
Required:
1- Prepare the necessary journal entries to record the
above transactions.
2- Prepare net income from investment ledger account.
 Question 2:

1- The direct premiums conducted during the month totalled

L.E. 900,000. The fees were as follows: L.E. 9,000 stamp
fees, L.E. 6,000 supervision fees, and L.E. 11,000 issue
fees. Treaty Reinsurance Premiums accepted totalled L.E.
400,000.
 Question 2:
Solution:
1-
Debtors of Insurance Transactions
Premiums Receivable 926,000
Total premiums 900,000
Other revenues 11,000
Creditors and other credit balances 15,000

Reinsurance Premiums Ceded 180,000

Insurance & Reinsurance Companies 180,000
The Egyptian Reinsurance Company

Insurance and Reinsurance Companies

Treaty Reinsurance Companies 400,000
Reinsurance Premiums Accepted 400,000
 Question 2:
2- The commission due to the agents and producers
totalled L.E. 90,000 and the commission of The Egyptian
Reinsurance company totalled L.E. 25,000. the commission
due to the ceding companies totalled L.E. 50,000. Other
production expenses amounted to L.E. 10,000.
 Question 2:

Solution:

2-
Production Costs
Producers wages & benefits 90,000
Creditors and other credit balances 90,000

Insurance and Reinsurance Companies

The Egyptian Reinsurance Company 25,000
Reinsurance Commission on 25,000
premiums ceded
 Question 2:

Solution:

2-
Reinsurance Commission on premiums Accepted 50,000
Insurance and Reinsurance Companies
The Egyptian Reinsurance Company 50,000

Production Costs
Producers Expenses 10,000
Creditors and other credit balances 10,000
 Question 2:
3- Total claims paid were as follows:
By Death L.E. 100,000
By Maturity L.E. 60,000
By Surrender L.E. 40,000
Pensions and Annuities L.E. 20,000
In addition, the reinsurance claims on premiums accepted
totalled L.E. 50,000 as follows:
By Death L.E. 15,000
By Maturity L.E. 15,000
By Surrender L.E. 10,000
Pensions and Annuities L.E. 10,000
 Question 2:

Solution:

3-
Total claims Paid
By Death 100,000
By Maturity 60,000
By Surrender 40,000
Pensions and Annuities 20,000
Cash in Hands & at banks 220,000

Insurance and Reinsurance Companies

The Egyptian Reinsurance Company 44,000
Reinsurance Claims on Premiums Ceded 44,000
 Question 2:

Solution:

3-
Total Claims Paid
Reinsurance Claims on Premiums accepted 15,000
By Death 15,000
By Maturity 10,000
By Surrender 10,000
Pensions and Annuities 50,000
Cash in Hand and at banks
 Question 2:

4- Accrued income from investment was as follows:

Securities revenues L.E.10,000
Loans Interest Revenue L.E. 3,000
Real estate rent revenue L.E.15,000
Interest on deposits at banks L.E. 5,000

In addition, real estate expenses are payable totalled L.E.

2,000.
 Question 2:

Solution:

4-
Debtors and Other Debit balances
Investment Revenue and Interest Receivable 33,000
Securities Revenue 10,000
Loans Interest Revenue 3,000
Real estate rent revenue 15,000
Interest revenue on deposits at banks 5,000

Real Estate expense

Creditors and other credit balances
 Question 2:
5- Total General and Administrative expenses payable
totalled L.E. 10,000. and this amount was diagnosed as
follows:
Joint and appropriated expenses L.E. 7,000
Unappropriated expenses L.E. 3,000
 Question 2:

Solution:

5-
General and Administrative Expenses 10,000
Creditors and other credit balances 10,000

Revenue and Expense Account (Life Assurance) 7,000

General and Administrative Expenses 7,000

Miscellaneous Expense
Other Expenses 3,000
General and Administrative Expenses 3,000
 Question 2:
6- Computer centre expenses payable totalled L.E. 6,000,
the appropriated part was 75%.
 Question 2:

Solution:

5-
Computer Centre Expenses 6,000
Creditors and other credit balances 6,000

Revenue and Expense Account (Life Assurance) 4,500

Computer Centre Expenses 4,500

Miscellaneous Expense
Other Expenses 1,500
Computer Centre Expenses 1,500
 Question 3:

The following balances were extracted from the accounting

records of an insurance company (for its life and fire and
insurance branches) for the year ended June 30 2016
(amounts are in thousands of pounds):

Life Fire

Real estate Expenses 30 20

Computer Centre Expenses 12 --
Direct Insurance Premiums 1,200 1,100
Direct Claims Paid 750 500
Producers wages 100 100
Other expenses 30 20
Reinsurance premiums ceded 40 50
 Question 3:

Life Fire
Reinsurance premiums Accepted 200 150
Reinsurance Claims on Premiums ceded 180 130
Reinsurance Claims on premiums accepted 100 150
Reinsurance commission on premiums accepted 20 30
General and Administrative expenses 60 20
Net income from investments 115 100
Reinsurance commission on premium ceded 50 25
Production expenses 20 30
Loss on sale of securities 15 --
Other revenues 50 20
 Question 3:

Additional Information:

Unappropriated items: Total

Net income from investment 150
Depreciation expense 300
Provision for loan losses 220
Other revenues 70
Other expenses 250

You are required to prepare:

1- Revenue and expense account for both life and fire
insurance branches for the year ended June 30 2016.
 Question 3:

2- Profit and Loss account for the year ended June 30

2016.
 Revenue and Expense Account for life
Assurance Branch June 30, 2016
Expenses Revenues
Total Claims paid: Total premiums:
Direct claims 750 Direct premiums 1,200
Reinsurance claims on 100 Reinsurance premiums 200
premiums accepted accepted
(-) Reinsurance claims on (180) (-) reinsurance premium (40)
premiums ceded ceded
670 1,360

Productions costs: Reinsurance commission 50

Producers wages and 120 on premiums ceded
benefits
Production expenses 20 Net income from 115
140 investments
Other revenues 50
 Revenue and Expense Account for life
Assurance Branch June 30, 2016
Expenses Revenues
General and
Administrative Expenses 60
Computer centre
Expenses 12
Other expenses 30

Total expenses 912 Total revenues 1,575

Surplus 663
 Revenue and Expense Account for Fire
Branch June 30, 2016
Expenses Revenues
Total Claims paid: Total premiums:
Direct claims 500 Direct premiums 1,100
Reinsurance claims on 150 Reinsurance premiums 150
premiums accepted accepted
(-) Reinsurance claims on (130) (-) reinsurance premium (50)
premiums ceded ceded
520 1,200

Productions costs: Reinsurance commission 25

Producers wages and 130 on premiums ceded
benefits
Production expenses 30 Net income from 80
160 investments
Other revenues 20
 Revenue and Expense Account for Fire
Branch June 30, 2016
Expenses Revenues
General and
Administrative Expenses 20
Other expenses 20

Total expenses 720 Total revenues 1,325

Surplus 605
 Profit and Loss Account for the year ended
June 30, 2016
Expenses Revenues
Depreciation expense 300 Balances carried from
Revenue and Expense
Provision for loan losses 220 Account:
Life Branch 663
Other expenses 250 Fire Branch 605

Net income from

investments 150

Other revenues 70

Total expenses 770 Total revenues 1,488

Distributable Surplus 718