Question 1

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 2

There have been numerous criticisms of AASB 1023 since it became operative in 1992. The criticisms have mainly come from:

Accepted Answer

A)   Policy holders.
B)   Government policy advisers.
C)   General insurers.
D)   Professional accounting bodies.
E)   None of the given answers.

Question 3

The new version of AASB 1023 has gone some way to reducing the volatility in earnings but:

Accepted Answer

A)   Some volatility will remain with the required application of AASB 140.
B)   This volatility will be completely removed when the IASB complete their Insurance Project.
C)   The introduction of the requirement to apply AASB 139 will introduce further volatility to the accounts.
D)   Some volatility will remain with the required application of AASB 140 and the introduction of the requirement to apply AASB 139 will introduce further volatility to the accounts.
E)   None of the given answers.

Question 4

Which of the following are considered income arising from insurance contracts?

Accepted Answer

A)   Direct premium revenue.
B)   Inward reinsurance premium revenue.
C)   Unearned premium revenue.
D)   Direct premium revenue and inward reinsurance premium revenue.
E)   Direct premium revenue and unearned premium revenue. D

Question 5

In undertaking a liquidity adequacy test, if the present value of future claims exceeds the unearned premium liability:

Accepted Answer

A)   The difference must be recorded as an asset under AASB 1023.
B)   A further liability should be recorded to 'make up' the deficiency.
C)   An expense should be recorded by initially writing down any related intangible assets.
D)   A further liability should be recorded to 'make up' the deficiency and an expense should be recorded by initially writing down any related intangible assets.
E)   None of the given answers.

Question 6

What is an example of deferred acquisition costs and how does AASB 1023 require them to be treated?

Accepted Answer

A)   They include commission or brokerage paid to agents to attract business. They should be deferred as an asset and systematically amortised over the period of expected benefit.
B)   They include brokerage and legal fees paid in advance of the purchase of land. They should be deferred and included in the cost of the land.
C)   They include the purchase of client lists and policy details from agents. They should be capitalised as an intangible asset and revalued at balance date.
D)   They include brokerage and legal fees paid in advance of the purchase of land. They should be deferred and included in the cost of the land and they include the purchase of client lists and policy details from agents. They should be capitalised as an intangible asset and revalued at balance date.
E)   All of the given answers.

Question 7

The superseded version of AASB 1023 required that investments that are integral to the entity's general insurance activities should be:

Accepted Answer

A)   Measured at net market value, with any changes being treated as an adjustment to equity through reserves.
B)   Measured at current replacement cost and depreciated so that the expense of the period is matched against premium revenue.
C)   Measured at net market value, with any changes treated as a revenue or expense of the period.
D)   Measured at the lower of cost and recoverable amount, with any amounts written off treated as an expense of the period.
E)   None of the given answers.

Question 8

General insurance refers to the provision of insurance for losses associated with events such as fire, flood, storms and vehicle accidents:

Accepted Answer

A) True 
 B)False

Question 9

AASB 1023 specifies how classes of assets are to be measured. These requirements include that:

Accepted Answer

A)   Recoveries receivable and operating assets be recorded at historical cost.
B)   Financial assets within the scope of AASB 139 be measured at depreciated net market value at balance date and recoveries receivable be at their nominal amount.
C)   Financial assets within the scope of AASB 139 be measured at fair through profit and loss and deferred acquisition costs be measured at cost and amortised.
D)   Deferred acquisition costs and recoveries receivable be measured at their discounted present value.
E)   None of the given answers.

Question 10

Which of AASB 1023's requirements has received the main criticism?

Accepted Answer

A)   The prohibition against netting reinsurance receivables against claims liabilities.
B)   The requirement to mark investments to market and reflect the changes in the income statement.
C)   The requirement to report premium revenues gross.
D)   The requirement to discount future claim liabilities at the market-determined, risk-adjusted discount rate for the entity.
E)   All of the given answers. B

Question 11

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.
E)   None of the given answers.

Question 12

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.
E)   None of the given answers.

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)   The process used to determine the risk margin, including the way in which diversification of risks has been allowed for.
E)   All of the given answers.

Question 14

Justice Owen in the HIH Royal Commission suggested that:

Accepted Answer

A)   Accounting standards which were unclear were primarily responsible for the collapse of HIH.
B)   The inclusion of more non-accounting experience on the AASB could assist in the standard setting process.
C)   That the true and fair view was no longer applicable to accounting reports.
D)   Accounting standards which were unclear were primarily responsible for the collapse of HIH and that the true and fair view was no longer applicable to accounting reports.
E)   None of the given answers. B

Question 15

Part of the insurance premium is a charge levied by government on the insured party. These amounts are to be treated as a liability by the insurer:

Accepted Answer

A) True 
 B)False

Question 16

Danger Ltd writes insurance policies to cover the risk of theft in Central Brisbane. The policy premiums are expected to be received evenly over the year as they have evenly distributed due dates. Danger Ltd is aware that the risk of theft is 20 times higher in March and 15 times higher in July than in the other months of the year. The appropriate discount rate for Danger Ltd is 15 per cent. If the total amount of insurance premiums to be received is $1,000,000, what is the pattern of revenue recognition in accordance with AASB 1023 (round amounts to the nearest dollar) ?

Accepted Answer

A)   $72,467 per month.
B)   $200,000 in March, $150,000 in July, $54,167 in each other month.
C)   $83,333 per month.
D)   $444,444 in March, $333,333 in July and $22,222 in each other month.
E)   None of the given answers.

Question 17

Property, plant and equipment that is within the scope of AASB 116 and backs general insurance liabilities, should be measured at:

Accepted Answer

A)   Depreciated historical cost.
B)   Net replacement cost.
C)   Recoverable amount.
D)   Net present value.
E)   None of the given answers.

Question 18

In undertaking a liability adequacy test the present value of future claims must be compared with unearned premiums:

Accepted Answer

A) True 
 B)False

Question 19

Some stakeholders have been critical of aspects of AASB 1023 that introduce volatility into earnings. Why would increased volatility be considered undesirable?

Accepted Answer

A)   Increased volatility is associated with unreliable service and may lead potential policy holders to choose another company.
B)   It makes it more difficult for management to plan how to manage its profit levels.
C)   Volatile earnings make it more difficult for employees to argue for pay increases.
D)   Insurers may be put into technical default on contractual clauses relating to things such as debt covenants.
E)   None of the given answers.

Question 20

Outstanding claims should be recognised as liabilities, as should any insurance premiums received in advance but not yet earned.

Accepted Answer

A) True 
 B)False

Exam 22: Accounting for General Insurance Contracts

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.

Correct Answer
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There have been numerous criticisms of AASB 1023 since it became operative in 1992. The criticisms have mainly come from:

Correct Answer
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The new version of AASB 1023 has gone some way to reducing the volatility in earnings but:

Correct Answer
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Which of the following are considered income arising from insurance contracts?

Correct Answer
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D

In undertaking a liquidity adequacy test, if the present value of future claims exceeds the unearned premium liability:

Correct Answer
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What is an example of deferred acquisition costs and how does AASB 1023 require them to be treated?

Correct Answer
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The superseded version of AASB 1023 required that investments that are integral to the entity's general insurance activities should be:

Correct Answer
verified

General insurance refers to the provision of insurance for losses associated with events such as fire, flood, storms and vehicle accidents:

Correct Answer
verified

AASB 1023 specifies how classes of assets are to be measured. These requirements include that:

Correct Answer
verified

Which of AASB 1023's requirements has received the main criticism?

Correct Answer
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B

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:

Correct Answer
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The treatment of deferred acquisition costs is inconsistent with AASB 138 because.

Correct Answer
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The disclosures required in AASB 1023 in relation to liabilities for outstanding claims include.

Correct Answer
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Justice Owen in the HIH Royal Commission suggested that:

Correct Answer
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B

Part of the insurance premium is a charge levied by government on the insured party. These amounts are to be treated as a liability by the insurer:

Correct Answer
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Correct Answer
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Property, plant and equipment that is within the scope of AASB 116 and backs general insurance liabilities, should be measured at:

Correct Answer
verified

In undertaking a liability adequacy test the present value of future claims must be compared with unearned premiums:

Correct Answer
verified

Some stakeholders have been critical of aspects of AASB 1023 that introduce volatility into earnings. Why would increased volatility be considered undesirable?

Correct Answer
verified

Outstanding claims should be recognised as liabilities, as should any insurance premiums received in advance but not yet earned.

Correct Answer
verified

Exam 22: Accounting for General Insurance Contracts

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.

Correct AnswerverifiedShow Answer

There have been numerous criticisms of AASB 1023 since it became operative in 1992. The criticisms have mainly come from:

Correct AnswerverifiedShow Answer

The new version of AASB 1023 has gone some way to reducing the volatility in earnings but:

Correct AnswerverifiedShow Answer

Which of the following are considered income arising from insurance contracts?

Correct AnswerverifiedD

In undertaking a liquidity adequacy test, if the present value of future claims exceeds the unearned premium liability:

Correct AnswerverifiedShow Answer

What is an example of deferred acquisition costs and how does AASB 1023 require them to be treated?

Correct AnswerverifiedShow Answer

The superseded version of AASB 1023 required that investments that are integral to the entity's general insurance activities should be:

Correct AnswerverifiedShow Answer

General insurance refers to the provision of insurance for losses associated with events such as fire, flood, storms and vehicle accidents:

Correct AnswerverifiedShow Answer

AASB 1023 specifies how classes of assets are to be measured. These requirements include that:

Correct AnswerverifiedShow Answer

Which of AASB 1023's requirements has received the main criticism?

Correct AnswerverifiedB

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Justice Owen in the HIH Royal Commission suggested that:

Correct AnswerverifiedB

Part of the insurance premium is a charge levied by government on the insured party. These amounts are to be treated as a liability by the insurer:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Property, plant and equipment that is within the scope of AASB 116 and backs general insurance liabilities, should be measured at:

Correct AnswerverifiedShow Answer

In undertaking a liability adequacy test the present value of future claims must be compared with unearned premiums:

Correct AnswerverifiedShow Answer

Some stakeholders have been critical of aspects of AASB 1023 that introduce volatility into earnings. Why would increased volatility be considered undesirable?

Correct AnswerverifiedShow Answer

Outstanding claims should be recognised as liabilities, as should any insurance premiums received in advance but not yet earned.

Correct AnswerverifiedShow Answer

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D

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B

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B

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