Question 1

Which of the following statements is true?

Accepted Answer

A)  In accordance with AASB 1023 premium revenue shall be recognised from attachment date as soon as there is a basis on which it can be reliably estimated. 
B)  Premium revenue shall be recognised in the statement of comprehensive income from attachment date over the period of the contract in accordance with the pattern of the incidence of risk. 
C)  Premium revenue shall be recognised in the statement of comprehensive income from attachment date over the period of the general insurance contract. 
D)  In accordance with AASB 1023 premium revenue shall be recognised from attachment date as soon as there is a basis on which it can be reliably estimated and premium revenue shall be recognised in the statement of comprehensive income from attachment date over the period of the contract in accordance with the pattern of the incidence of risk. 
A)  In accordance with AASB 1023 premium revenue shall be recognised from attachment date as soon as there is a basis on which it can be reliably estimated. 
B)  Premium revenue shall be recognised in the statement of comprehensive income from attachment date over the period of the contract in accordance with the pattern of the incidence of risk. 
C)  Premium revenue shall be recognised in the statement of comprehensive income from attachment date over the period of the general insurance contract. 
D)  In accordance with AASB 1023 premium revenue shall be recognised from attachment date as soon as there is a basis on which it can be reliably estimated and premium revenue shall be recognised in the statement of comprehensive income from attachment date over the period of the contract in accordance with the pattern of the incidence of risk.

Question 2

A general insurer that also conducts other business may be required to apply different valuation methods even within 1 class of assets.For example,land and buildings may be valued in one of a number of ways,including:

Accepted Answer

A)  at cost or fair value where they do not back general insurance business liabilities but only at fair value under AASB 1023. 
B)  at lower of cost and net realisable value where they are an integral part of the insurance business and net present value where they are not an integral part of the insurance business. 
C)  at management's discretion, at either net market value or depreciated (in the case of buildings) cost. 
D)  at net market value or fair value, depending upon the whether the land and buildings are an investment for the purposes of generating revenue or used as an operating asset to provide office space for the insurance business 
A)  at cost or fair value where they do not back general insurance business liabilities but only at fair value under AASB 1023. 
B)  at lower of cost and net realisable value where they are an integral part of the insurance business and net present value where they are not an integral part of the insurance business. 
C)  at management's discretion, at either net market value or depreciated (in the case of buildings) cost. 
D)  at net market value or fair value, depending upon the whether the land and buildings are an investment for the purposes of generating revenue or used as an operating asset to provide office space for the insurance business

Question 3

An insurer is not required to disclose its objectives,policies and processes for managing risks arising from insurance contracts.

Accepted Answer

A) True 
 B)False

Question 4

Items to be disclosed under AASB 1023 include:

Accepted Answer

A)  inwards freight. 
B)  revenue from operating assets. 
C)  investment expenses. 
D)  inwards reinsurance revenue. 
A)  inwards freight. 
B)  revenue from operating assets. 
C)  investment expenses. 
D)  inwards reinsurance revenue.

Question 5

The cedant is:

Accepted Answer

A)  the insurer. 
B)  the policy holder. 
C)  the reinsurer. 
D)  none of the given answers. 
A)  the insurer. 
B)  the policy holder. 
C)  the reinsurer. 
D)  none of the given answers.

Question 6

Government charges levied on the insurer may be required to be paid while the revenue that they relate to remains unearned.In this case the appropriate accounting treatment in the books of the insurer is to treat the levies paid as:

Accepted Answer

A)  a liability. 
B)  a prepayment. 
C)  a contra account to unearned revenue. 
D)  net the levies off the revenue recognised in the period that the levies are payable. 
A)  a liability. 
B)  a prepayment. 
C)  a contra account to unearned revenue. 
D)  net the levies off the revenue recognised in the period that the levies are payable.

Question 7

AASB 1023's disclosure requirements relating to the statement of comprehensive income include:

Accepted Answer

A)  deferred acquisition costs. 
B)  inwards reinsurance revenue. 
C)  unearned premiums. 
D)  undiscounted gross claims incurred. 
A)  deferred acquisition costs. 
B)  inwards reinsurance revenue. 
C)  unearned premiums. 
D)  undiscounted gross claims incurred.

Question 8

The consistency of AASB 1023 with other accounting standards has been raised as an issue.Which two other standards specifically do not apply to the general insurance part of a business but may apply to the remaining elements of the business?

Accepted Answer

A)  AASB 132 Financial Instruments: Disclosure and Presentation and AASB 102 Inventories 
B)  AASB 112 Income Taxes and AASB 124 Related Party Transactions 
C)  AASB 107 Statement of Cash Flows and AASB 132 Financial Instruments: Disclosure and Presentation. 
D)  AASB 9 Financial Instruments: Recognition and Measurement and AASB 116 Property, Plant and Equipment. 
A)  AASB 132 Financial Instruments: Disclosure and Presentation and AASB 102 Inventories 
B)  AASB 112 Income Taxes and AASB 124 Related Party Transactions 
C)  AASB 107 Statement of Cash Flows and AASB 132 Financial Instruments: Disclosure and Presentation. 
D)  AASB 9 Financial Instruments: Recognition and Measurement and AASB 116 Property, Plant and Equipment.

Question 9

The treatment of deferred acquisition costs is inconsistent with AASB 138 because:

Accepted Answer

A)  These costs are deemed to be an intangible asset under AASB 138. 
B)  These costs do not meet definition criteria for assets under the AASB Framework. 
C)  These costs are not separable, which is required for intangible assets under AASB 138. 
D)  These costs do not meet definition criteria for assets under the AASB Framework and these costs are not separable, which is required for intangible assets under AASB 138. 
A)  These costs are deemed to be an intangible asset under AASB 138. 
B)  These costs do not meet definition criteria for assets under the AASB Framework. 
C)  These costs are not separable, which is required for intangible assets under AASB 138. 
D)  These costs do not meet definition criteria for assets under the AASB Framework and these costs are not separable, which is required for intangible assets under AASB 138.

Question 10

Which of the following statements is correct in regards to assets backing general insurance liabilities?

Accepted Answer

A)  Financial assets are required to be recognised at fair value through profit and loss. 
B)  Property, plant and equipment shall be measured using either the cost model or the valuation model. 
C)  Investment properties shall be measured using the fair value model. 
D)  Financial assets are required to be recognised at fair value through profit and loss, and investment properties shall be measured using the fair value model. 
A)  Financial assets are required to be recognised at fair value through profit and loss. 
B)  Property, plant and equipment shall be measured using either the cost model or the valuation model. 
C)  Investment properties shall be measured using the fair value model. 
D)  Financial assets are required to be recognised at fair value through profit and loss, and investment properties shall be measured using the fair value model.

Question 11

Under AASB 1023 a general insurer must adopt the fair value model to account for financial assets backing general insurance liabilities.

Accepted Answer

A) True 
 B)False

Question 12

Payments to insurance contracts that relate to claims recognised in a previous period reduce the liability for claims that was created in the previous financial period.

Accepted Answer

A) True 
 B)False

Question 13

The disclosures required in AASB 1023 in relation to liabilities for outstanding claims include:

Accepted Answer

A)  the percentage margin adopted in determining the outstanding claims liability. 
B)  the component related to the risk margin. 
C)  the central estimate of the expected present value of future payments for claims incurred. 
D)  all of the given answers. 
A)  the percentage margin adopted in determining the outstanding claims liability. 
B)  the component related to the risk margin. 
C)  the central estimate of the expected present value of future payments for claims incurred. 
D)  all of the given answers.

Question 14

Under the revised AASB 1023,acquisition costs with future economic benefits are no longer deferred; instead these costs should be expensed as incurred.

Accepted Answer

A) True 
 B)False

Question 15

Warning Ltd writes insurance policies to cover the risk of storms in northern Australia.The policy premiums are expected to be received evenly over the year as they have evenly distributed due dates.Warning Ltd is aware that the risk of storms is 25 times greater in the months between December and March than in the other months of the year.The appropriate discount rate for Warning Ltd is 11%.If the total amount of insurance premiums to be received is $400 000,what is the pattern of revenue recognition in accordance with AASB 1023 (round amounts to the nearest dollar)?

Accepted Answer

A)  $33 333 per month 
B)  $82 407 in December to March; $3296 each other month 
C)  $3667 per month. 
D)  $92 593 in December to March; $3703 each other month 
A)  $33 333 per month 
B)  $82 407 in December to March; $3296 each other month 
C)  $3667 per month. 
D)  $92 593 in December to March; $3703 each other month

Question 16

General insurance is an important part of the economy as it:

Accepted Answer

A)  enables entities to reduce their risk exposure. 
B)  benefits society by safeguarding individuals' homes. 
C)  encourages investment in particular activities. 
D)  All of the given answers are correct. 
A)  enables entities to reduce their risk exposure. 
B)  benefits society by safeguarding individuals' homes. 
C)  encourages investment in particular activities. 
D)  All of the given answers are correct.

Question 17

Which of the following is not within the scope of AASB 1023 General Insurance Contracts?

Accepted Answer

A)  motor vehicle insurance 
B)  home and contents insurance 
C)  third party liability insurance 
D)  life insurance 
A)  motor vehicle insurance 
B)  home and contents insurance 
C)  third party liability insurance 
D)  life insurance

Question 18

Unclosed business can be described as:

Accepted Answer

A)  a business that has been rendered inoperable but is covered by a general insurance contract and will be restored. 
B)  a situation where an insurer has agreed to accept the risk before the appropriate policy contract has been completed. 
C)  business written close to balance date where the attachment date is post balance date. 
D)  a situation where the unearned portion of the premium needs to be estimated to be included in premium revenue. 
A)  a business that has been rendered inoperable but is covered by a general insurance contract and will be restored. 
B)  a situation where an insurer has agreed to accept the risk before the appropriate policy contract has been completed. 
C)  business written close to balance date where the attachment date is post balance date. 
D)  a situation where the unearned portion of the premium needs to be estimated to be included in premium revenue.

Question 19

In AASB 1023 General Insurance Contracts,premium that has not been recognised in the statement of comprehensive income is premium that is unearned and recognised in the statement of financial position as an unearned premium liability.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following was not identified by the general insurers as introducing volatility to the financial statements?

Accepted Answer

A)  debentures 
B)  equity investments 
C)  government bonds 
D)  property 
A)  debentures 
B)  equity investments 
C)  government bonds 
D)  property

Exam 21: Accounting for General Insurance Contracts

Which of the following statements is true?

A general insurer that also conducts other business may be required to apply different valuation methods even within 1 class of assets.For example,land and buildings may be valued in one of a number of ways,including:

An insurer is not required to disclose its objectives,policies and processes for managing risks arising from insurance contracts.

Items to be disclosed under AASB 1023 include:

The cedant is:

Government charges levied on the insurer may be required to be paid while the revenue that they relate to remains unearned.In this case the appropriate accounting treatment in the books of the insurer is to treat the levies paid as:

AASB 1023's disclosure requirements relating to the statement of comprehensive income include:

The consistency of AASB 1023 with other accounting standards has been raised as an issue.Which two other standards specifically do not apply to the general insurance part of a business but may apply to the remaining elements of the business?

The treatment of deferred acquisition costs is inconsistent with AASB 138 because:

Which of the following statements is correct in regards to assets backing general insurance liabilities?

Under AASB 1023 a general insurer must adopt the fair value model to account for financial assets backing general insurance liabilities.

Payments to insurance contracts that relate to claims recognised in a previous period reduce the liability for claims that was created in the previous financial period.

The disclosures required in AASB 1023 in relation to liabilities for outstanding claims include:

Under the revised AASB 1023,acquisition costs with future economic benefits are no longer deferred; instead these costs should be expensed as incurred.

General insurance is an important part of the economy as it:

Which of the following is not within the scope of AASB 1023 General Insurance Contracts?

Unclosed business can be described as:

In AASB 1023 General Insurance Contracts,premium that has not been recognised in the statement of comprehensive income is premium that is unearned and recognised in the statement of financial position as an unearned premium liability.

Which of the following was not identified by the general insurers as introducing volatility to the financial statements?

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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