Entity A writes a single policy for a P100,000 premium and expects claims to be made of
Question:
Entity A writes a single policy for a P100,000 premium and expects claims to be made of
P60,000 in 2013.
At the time of writing the policy, there are commission costs of P20,000.
Assume a discount rate of 3% risk free. The entity says that if a provision for risk and
uncertainty were to be made, it would amount to P25,000 and that this risk would expire evenly
over years 2011, 2012, and 2013.
Under existing policies, the entity would spread the
premiums, the claims expense and the commissioning costs over the first two years of the
policy.
Investment returns in years 2010 and 2011 are P2,000 and P4,000 respectively.
What is the profit in year 2010 and 2011, using the matching and deferral approach in years
2010 and 2011?
Materials and process in manufacturing
ISBN: 978-0471656531
9th edition
Authors: E. Paul DeGarmo, J T. Black, Ronald A. Kohser