Question 1

The attachment date is the date from which an insurer accepts risk for the insured under a contract or endorsement:

Accepted Answer

A) True 
 B)False

Question 2

Under AASB 1023 general insurers would not record a gain or loss on the disposal of investments:

Accepted Answer

A) True 
 B)False

Question 3

General insurance contracts and life insurance contracts are not within the scope AASB 4 "Insurance contracts".

Accepted Answer

A) True 
 B)False

Question 4

A reinsurance asset is impaired if, and only if there is objective evidence, as a result of an event that occurred after initial recognition, that the cedant may not receive amounts due to it under the terms of the contract; and that event has a reliably measurable impact on the amounts that the cedant will receive from the reinsurer.

Accepted Answer

A) True 
 B)False

Question 5

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)   Bush fire insurance;
E)   Life insurance

Question 6

Which of the following statement(s)  is/are 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 property, plant and equipment shall be measured using either the cost model or the valuation model.
E)   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 7

The present value of claim liabilities will increase as the number of years they remain unsettled increases. This difference should be treated as an expense:

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is within the scope of AASB 1023 "General Insurance Contracts"?

Accepted Answer

A)   Fixed fee service contracts;
B)   Life insurance contracts;
C)   Weather derivatives;
D)   Product warranties;
E)   Financial guarantee contracts.

Question 9

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)   Deals with insurance for all areas of insurance other than life insurance.
E)   All of the given answers.

Question 10

Risk margins are determined on the basis of:

Accepted Answer

A)   The robustness of valuation models used.
B)   Past experience of the insurer and the industry.
C)   The reliability and volume of data.
D)   The characteristics of the classes of business underwritten.
E)   All of the given answers.

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

It was argued that the old version of AASB 1023 would inappropriately increase the volatility in earnings through:

Accepted Answer

A)   Its requirement to recognise short-term changes in the net market value of investments in the income statement regardless of whether or not management intends to hold the investments long term.
B)   The failure to net reinsurance reimbursements from claims so that a higher level of claims is reflected in the income statement despite the fact that management has mitigated against this.
C)   The failure to recognise the value of intangible assets such as client lists that contribute to a steady flow of income for an insurer.
D)   The failure to net reinsurance reimbursements from claims so that a higher level of claims is reflected in the income statement despite the fact that management has mitigated against this and the failure to recognise the value of intangible assets such as client lists that contribute to a steady flow of income for an insurer.
E)   None of the given answers.

Question 13

Which of the following is not a part of Justice Owen's recommendations to the Australian Accounting Standards Board with respect to AASB 1023 "General Insurance Contracts"?

Accepted Answer

A)   Requirement that premium revenue and insurance liabilities be recognised on the commencement of a contract of insurance.
B)   Requirement that, in estimating the present value of liabilities, future cash flows be discounted using high quality corporate bond rate;
C)   Requirement that companies subject to the standard disclose a 10-year claims-development table that includes past estimates of claims on an undiscounted basis as well as the actual costs of settling claims.
D)   Requirement that insurance liabilities be valued at a level of sufficiency of at least 75 per cent, as required by APRA's prudential standards.
E)   None 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 per cent. 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)   $3,296 per month except for December to March when $82,407 would be recognised.
C)   $3,667 per month.
D)   $92,593 per month from December to March and $3,703 per month in the remaining months.
E)   None of the given answers.

Question 16

Which of the following statements is not in accordance with AASB 1023 "General Insurance Contracts"?

Accepted Answer

A)   Premium that has not been recognised in the income statement is premium that is unearned and shall be recognised in the balance sheet as an unearned premium liability.
B)   The outstanding claims liability may be discounted for the time value of money using government bond rates that match the structure and term of the future obligations.
C)   The expected future payments include:(a)  unpaid reported claims;(b)  claims incurred but not reported;(c)  claims incurred but not enough reported; and (d)  acquisition costs;
D)   An outstanding claims liability shall be recognised in respect of direct business and reinsurance business and shall be measured as the central estimate of the present value of the expected future payments for claims incurred with an additional risk margin to allow for the inherent uncertainty in the central estimate.
E)   None of the given answers.

Question 17

Unclosed business is defined as business written close to the balance date for which the date of attachment of the risk is before the balance date:

Accepted Answer

A) True 
 B)False

Question 18

You are an accountant for Chance Insurance Ltd and are asked to assess the adequacy of unearned premium liability. You are able to access the following information:
I. present value of expected future cash flows relating to future claims based on current insurance contracts
II. unearned premium liability (before liability adequacy test) 
III. risk margin
IV. related deferred Acquisition Cost
V. related intangible assets
Which of the following combination best fits the liability adequacy test as prescribed in AASB 1023?

Accepted Answer

A)   (I+III) -II
B)   (I+III) -(II-IV-V) 
C)   (I-III) -II
D)   (I+III)  - (II+IV+V) 
E)   None of the given answers

Question 19

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

Accepted Answer

A)   Direct claims expense.
B)   Reinsurance claims expense.
C)   Deferred Acquisition costs.
D)   All of the given answers.
E)   Direct claims expense and reinsurance claims expense.

Question 20

Payments made on claims should be:

Accepted Answer

A)   Always treated as an expense for the period in which the payment is made.
B)   Only treated as an expense in the period if the claim is also settled in that period.
C)   Used to reduce the liability for claims settled in previous periods.
D)   Only treated as an expense in the period if the claim is also settled in that period and used to reduce the liability for claims settled in previous periods.
E)   None of the given answers.

Exam 22: Accounting for General Insurance Contracts

Which of the following is not a part of Justice Owen's recommendations to the Australian Accounting Standards Board with respect to AASB 1023 "General Insurance Contracts"?

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

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

Correct Answer
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Under AASB 1023 general insurers would not record a gain or loss on the disposal of investments:

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

Correct Answer
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Which of the following is within the scope of AASB 1023 "General Insurance Contracts"?

Correct Answer
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Risk margins are determined on the basis of:

Correct Answer
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Correct Answer
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Unclosed business is defined as business written close to the balance date for which the date of attachment of the risk is before the balance date:

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

Correct Answer
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Correct Answer
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It was argued that the old version of AASB 1023 would inappropriately increase the volatility in earnings through:

Correct Answer
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Which of the following statement(s) is/are correct in regards to assets backing general insurance liabilities?

Correct Answer
verified

Which of the following statements is not in accordance with AASB 1023 "General Insurance Contracts"?

Correct Answer
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General insurance contracts and life insurance contracts are not within the scope AASB 4 "Insurance contracts".

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

Correct Answer
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The present value of claim liabilities will increase as the number of years they remain unsettled increases. This difference should be treated as an expense:

Correct Answer
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Payments made on claims should be:

Correct Answer
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The attachment date is the date from which an insurer accepts risk for the insured under a contract or endorsement:

Correct Answer
verified

Exam 22: Accounting for General Insurance Contracts

Which of the following is not a part of Justice Owen's recommendations to the Australian Accounting Standards Board with respect to AASB 1023 "General Insurance Contracts"?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Under AASB 1023 general insurers would not record a gain or loss on the disposal of investments:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is within the scope of AASB 1023 "General Insurance Contracts"?

Correct AnswerverifiedShow Answer

Risk margins are determined on the basis of:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Unclosed business is defined as business written close to the balance date for which the date of attachment of the risk is before the balance date:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

It was argued that the old version of AASB 1023 would inappropriately increase the volatility in earnings through:

Correct AnswerverifiedShow Answer

Which of the following statement(s) is/are correct in regards to assets backing general insurance liabilities?

Correct AnswerverifiedShow Answer

Which of the following statements is not in accordance with AASB 1023 "General Insurance Contracts"?

Correct AnswerverifiedShow Answer

General insurance contracts and life insurance contracts are not within the scope AASB 4 "Insurance contracts".

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The present value of claim liabilities will increase as the number of years they remain unsettled increases. This difference should be treated as an expense:

Correct AnswerverifiedShow Answer

Payments made on claims should be:

Correct AnswerverifiedShow Answer

The attachment date is the date from which an insurer accepts risk for the insured under a contract or endorsement:

Correct AnswerverifiedShow Answer

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