268

CHAPTER EIGHT

Final Accounts for Life Insurance

Branches
8.1 INTRODUCTION
Like all business enterprises, insurance companies

prepare final accounts or financial statements at

year end to provide their users with appropriate

information needed for decision making process.

So, all users of financial statements are assumed

that they will require similar classification and

valuation processes for reporting the final results

of business enterprises.

The regulative authorities of insurance

companies obtain their needs of financial data

which is prepared according to accounting

269
practices that concentrate on liquidity as a basic

measurement of the reporting process. Their

objective is to guarantee that adequate funds are

provided to pay all obligations of insurance

company emerged from its insurance activities.

On the other hand, policyholders are considered

one of the users of the financial statements

prepared by insurance companies. Of course, they

are entitled to obtain financial information

required for investigating or evaluating the

financial strength of the company that insures

their risks. Insurance companies are obliged by

law to maintain sufficient reserves for paying

policyholders’ claims. Such requirement provides

270
policyholders with an appropriate comfort

regarding their insurance transactions.

Practically, insurance companies prepare final

accounts at the end of the accounting period.

according to the Egyptian Insurance Laws and

Regulations, insurance companies must provide

the Egyptian Insurance Supervisory Authority

(‫ )الهيئة المصرية لإلشراف علي التأمين‬with the following

statements and accounts every year:

 The balance sheet.

 Income statement for the company.

 A statement or account of revenues and

expenses for each insurance department

or branch.

271
  Statement of cash flows.

Insurance activity is considered one of the most

important activities of business. Hence, financial

reporting of insurance companies is highly

regulated. As a result, the financial statements or

final accounts of such companies must be

prepared in accordance with the forms provided in

the executive regulations of the insurance law.

The discussion in this chapter will be interested

in the statement or account of revenues and

expenses of life insurance, as it will be explained

in the following section.

272
8.2 REVENUES AND EXPENSES
ACCOUNT FOR LIFE INSURANCE
BRANCH:
Insurance activities cover a variety of insurance

departments or branches. Accordingly, there are

two stages in determining the results of operations

for the insurance company, as follows:

1) A statement or account of revenues and

expenses for each insurance department or

branch, which is prepared in order to determine

the surplus or deficit for each branch.

2) An income statement which is prepared for the

whole insurance company. All the surpluses (or

deficits) of insurance departments or branches

are transferred to the company’s income

273
 statement. The income statement encompasses

also the un-appropriated revenues and expenses

(general and administrative expenses) on the

level of the insurance company as a whole.

The statement or account of revenues and

expenses for life insurance branch includes all

adjusted revenues and expenses related to this

branch of insurance only. It is prepared in

accordance with generally accepted accounting

principles and prevailing standards in the

accounting domain, like all business

organizations. However, there are some items,

called technical provisions, which require to be

specially highlighted, as follows:

274
1. Reserve Fund:
This account is regarded as one of the obligations

or liabilities accounts in the insurance company’s

balance sheet. The amount of reserve fund

required is evaluated or assessed at the year-end

by a statistician ( an actuary). Such amount is

estimated to meet or match the obligation of the

insurance company toward policyholders’ claims

in the future.

2. Provision for Outstanding Claims:

Provision for outstanding claims is also estimated

at year-end to meet or cover claims occurred

during the year and that have been submitted by

policyholders, but not yet admitted or approved

for payment. These claims represent the unsettled

275
ones. This provision is also created to cover

claims for losses incurred before the balance sheet

date but submitted to insurance company for

settlement after that date.

Adjustments of the Technical Provision

Accounts at the Year-end:
On determining the amount of the reserve fund

required at the end of the year by the actuary to

meet the obligation of the insurance company

toward policyholders’ claims in the future, and

estimating the amount of the provision for

outstanding claims to cover the claims that have

been submitted to the insurance company during

the year but still unsettled yet, the following

journal entry is recorded in the general journal:

276
Revenues and Expenses Account-life branch xxx
Reserve Fund Account xxx
Outstanding Claims Account xxx

Such journal entry represents an adjusting entry

to charge the revenues and expenses account of

the amount of reserve fund and the amount of

outstanding claims required to meet the obligation

of the insurance company toward policyholders as

an expense.

At the start of the following year, the balances

of the reserve fund account and the outstanding

claims account are closed to the revenues and

expenses account of that year by preparing the

following journal entry:

277
 Reserve Fund Account xxx
Outstanding Claims Account xxx
Revenues and Expenses
Account-life branch xxx

Comprehensive Illustration (1):

The following balances appear in the books of

Misr Insurance Company at December 31, 2018

for life insurance branch (amounts in L.E.):

Description L.E.
Direct insurance premiums 1,200,000
Direct claims 440,000
Agents and producers’ wages 32,000
Reinsurance premiums ceded 300,000
Reinsurance premiums accepted 500,000
Reinsurance claims on premiums ceded 110,000
Reinsurance claims on premiums accepted 140,000
Direct commission to producers 120,000
Reinsurance commission on premiums ceded 36,000
Reinsurance commission on premiums accepted 50,000
Production expenses 84,000
Interest on reserve fund withheld on reinsurance
transactions ceded 2,400
Interest on reserve fund withheld by foreign
companies on reinsurance transactions accepted 2,200
Interest revenue on loans 27,000
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Interest revenue on bank deposits 15,000
Real estate rental revenues 32,000
Real estate expenses 15,600
Revenues on amounts invested against the
reserve fund for the purchase of government
bonds 9,000
Reserve fund 360,000
Provision for outstanding claims 90,000
Revenues from investment securities 101,000
Other revenues 77,400
Other expenses 119,400
Computer center expenses 15,200
Loss on sale of securities 71,800

Other data:
a. Reserve fund as on December 31, 2018 is

assessed to be of L.E.570,000.

b. Outstanding claims as on December 31, 2018

amounted L.E.150,000.

c. Depreciation expenses of fixed assets used in

life insurance branch for the year totaled

L.E.9,600.
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 Instructions:
1) Prepare the Net Income from Investments

Account.

2) Prepare the Revenues and Expenses Account of

life insurance branch for the year ended

December 31, 2018.

3) Prepare the Statement of Revenues and

Expenses of life insurance branch for the year

ended December 31, 2018.

Solution

1) Net Income from Investments Account

Real estate expenses 15,600 Revenues from securities 101,000
Loss on sale of securities 71,800 Interest revenues on loans 27,000
Real estate rental revenues 32,000
Interest revenue on bank
deposits 15,000
Revenue on amounts
invested against reserve
Net income from fund for purchasing
investments 96,600 government bonds 9,000
184,000 194,000

280
 Misr Insurance Company
2) Revenues and Expenses Account (Life
Branch)
For the year Ended December 31, 1018
Direct claims 440000 Technical
+ Reinsurance accepted provisions
claims 140000 Beg. of the year:
Total 580000 Reserve fund 360000
˗ Reinsurance ceded Outstanding claims 90000 450000
claims (110000)
Net claims 470000 Direct premiums 1200000
Direct commission 120000 + Reinsurance
+ Reinsurance accepted premiums accepted 500000
commission 50000 Total 1700000
Total 170000 ˗ Reinsurance
˗ Reinsurance ceded premiums ceded (300000)
commission (36000) Net premiums 1400000
Net commission 134000 Net income from
Production expenses 84000 investments 96600
Agents & producers
wages 32000 Interest revenue on
Computer center Exp. 15200 reserve fund of
Interest expense on reinsurance
reserve fund of accepted 2200
reinsurance ceded 2400 Other revenues 77400
Depreciation expenses 9600
Other expenses 119400
Technical provisions:
End of the year:
Reserve fund 570000
Outstanding claims 150000 720000
Surplus 439600
2026200 2026200

281
 Misr Insurance Company
3) Statement of Revenues and Expenses (Life
Branch)
For the year Ended December 31, 1018
Description L.E. L.E.
Revenues:
Direct premiums 1200000
+ Reinsurance premiums accepted 500000
Total premiums 1700000
˗ Reinsurance premiums ceded (300000)
Net premiums 1400000
Change in reserve funds:
Reserve fund at the beginning of the year 360000
Reserve fund at the end of the year (570000) (210000)

Reinsurance commission on premiums ceded 36000

Net income from investments 96600
Interest revenue on reserve fund of reinsurance
accepted 2200
Other revenues 77400
Total revenues 1402200
Expenses:
Direct claims 440000
+ Reinsurance accepted claims 140000
Total claims 580000
˗ Reinsurance ceded claims (110000)
Net claims 470000
Change in outstanding claims:
Outstanding claims at the end of the year 150000
Outstanding claims at the beginning of the year (90000) 60000

Direct commission 120000

Reinsurance commission on premiums accepted 50000
Total commission expenses 170000
Production expenses 84000

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Agents and producers’ wages 32000
Computer center expenses 15200
Interest expense of reserve fund of reinsurance
transactions ceded 2400
Depreciation expenses 9600
Other expenses 119400
Total expenses 962600
Surplus (deficit) of life insurance activities 439600

Comprehensive Illustration (2):

The following balances appear in the books of

National Insurance Company at December 31,

2018 for life insurance branch (amounts in L.E.):

Description L.E.
Direct insurance premiums 800,000
Direct claims 320,000
Agents and producers’ wages 37,000
Direct commission to producers 104,000
Reinsurance premiums ceded 208,000
Reinsurance claims on premiums ceded 96,000
Reinsurance premiums accepted 344,000
Reinsurance claims on premiums accepted 120,000
Reinsurance commission on premiums ceded 28,000
Reinsurance commission on premiums accepted 41,600
Interest on reserve fund withheld on reinsurance
transactions ceded 4,400
Interest income on loans 20,400
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Interest income on bank deposits 11,000
Real estate rental revenues 28,800
Real estate maintenance expenses 8,600
Revenues from investment securities 104,000
Other revenues 71,000
Gain on sale of securities 12,800
Reserve fund 304,000
Provision for outstanding claims 77,200

Other Information:
1. Reserve fund as on December 31, 2018 is

assessed to be of L.E.586,000.

2. Outstanding claims as on December 31, 2018

amounted L.E.130,000.

3. Depreciation expenses of fixed assets used in

life insurance branch for the year totaled

L.E.10,400.

284
 Instructions:
a. Prepare the Net Income from Investments
Account.
b. Prepare the Revenues and Expenses Account of
life insurance branch for the year ended
December 31, 2018.
c. Prepare the Statement of Revenues and
Expenses of life insurance branch for the year
ended December 31, 2018.
d. Prepare the closing entry at the beginning of
January 2018 and the adjusting entry at the end
of December 2018, for the technical reserves.
Solution
a. Net Income from Investments Account
Real estate maintenance Interest income on loans 20,400
expenses 8,600 Interest income on bank
deposits 11,000
Real estate revenues 28,800
Revenues from investment
Net income from securities 104,000
investments 168,400 Gain on sale of securities 12,800
177,000 177,000

285
 National Insurance Company
b. Revenues and Expenses Account (Life
Branch)
For the year Ended December 31, 1018
Direct claims 320000 Technical
+ Reinsurance accepted provisions
claims 120000 Beg. of the year:
Total 440000 Reserve fund 304000
˗ Reinsurance ceded Outstanding claims 77200 381200
claims (96000)
Net claims 344000 Direct premiums 800000
Direct commission 104000 + Reinsurance
+ Reinsurance accepted premiums accepted 344000
commission 41600 Total 1144000
Total 145600 ˗ Reinsurance
˗ Reinsurance ceded premiums ceded (208000)
commission (28000) Net premiums 936000
Net commission 117600 Net income from
Agents & producers investments 168400
wages 37000
Interest expense on Other revenues 71000
reserve fund of
reinsurance ceded 4400
Depreciation expenses 10400
Technical provisions:
End of the year:
Reserve fund 586000
Outstanding claims 130000 716000
Surplus 327200
1556600 1556600

286
 National Insurance Company
c. Statement of Revenues and Expenses (Life
Branch)
For the year Ended December 31, 1018
Description L.E. L.E.
Revenues:
Direct premiums 800000
+ Reinsurance premiums accepted 344000
Total premiums 1144000
˗ Reinsurance premiums ceded (208000)
Net premiums 936000
Change in reserve funds:
Reserve fund at the beginning of the year 304000
Reserve fund at the end of the year (586000) (282000)

Reinsurance commission on premiums ceded 28000

Net income from investments 168400
Other revenues 71000
Total revenues 921400
Expenses:
Direct claims 320000
+ Reinsurance accepted claims 120000
Total claims 440000
˗ Reinsurance ceded claims (96000)
Net claims 344000
Change in outstanding claims:
Outstanding claims at the end of the year 130000
Outstanding claims at the beginning of the year (77200) 52800

Direct commission 104000

Reinsurance commission on premiums accepted 41600
Total commission expenses 145600
Agents and producers’ wages 37000
Interest expense of reserve fund of reinsurance
transactions ceded 4400

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Depreciation expenses 10400
Total expenses 594200
Surplus (deficit) of life insurance activities 327200

d. Closing and Adjusting Journal Entries:

Description L.E. L.E.

Reserve Fund Account 304000
Provision for Outstanding Claims Account 77200
Revenues and Expenses Account 381200
To close the old balances of reserve fund and
provision for outstanding claims accounts
(Jan. 1, 2018).
Revenues and Expenses Account 716000
Reserve Fund account 586000
Provision for Outstanding Claims Account 130000
To charge the revenues and expenses
account for the amount of reserve fund and
provision for outstanding claims estimated at
the end of the year (Dec. 31, 2018).

288
8.3 FINANCIAL STATEMENTS AT THE
LEVEL INSURANCE COMPANY AS A
WHOLE:
Like any business organization, insurance

company prepares its financial statements, such as

income statement which portrays the operating

result for all insurance activities of the company

as a whole. Also, insurance company prepares

balance sheet that shows the financial position of

the company at a given date, usually at the end of

every financial period.

The Balance Sheet:

Like any balance sheet for a given business, the

balance sheet of insurance company reports the

assets, liabilities, and stockholders’ equity of a

business enterprise at a specific date. The balance

289
sheet provides basic information for computing

rates of returns and evaluating the capital structure

of the company.

The regulative authorities of insurance

activities require financial data from insurance

companies that is prepared on a set of accounting

practices that ascertain or emphasize liquidity as

the primary measurement of the reporting process.

The final objective of such requirement is to

ascertain that there is sufficient funds to meet the

insurance and other liabilities incurred by

insurance companies from the insurance activities

that they practice.

290
 On the other hand, the policyholders need to

receive financial information required to

investigate the financial strength of the company

which insures their risks. They take comfort in

knowing that the insurance company is obliged by

the law to maintain adequate reserves for the

payment of policyholders’ claims. policyholders’

interests in financial statements are assumed to be

satisfied by adherence with statutory accounting

practices.

The Income Statement:

The income statement of the insurance company

represents the second stage in the process of

determining the results of operations for an

291
insurance company. In the first or preliminary

stage, insurance company prepares a statement of

revenues and expenses for each insurance branch,

such as life, marine, fire, accidents, etc.

In the second or final stage, insurance

company prepares an income statement for the

company as a whole. Accordingly, the result of

each revenues and expenses statement for the

different branches of insurance activity (whether

surplus or deficit) is transferred to the company’s

income statement. Also, the un-appropriated

(general) revenues and un-appropriated expenses

of the company are transferred to this income

292
 statement. The following is a pro forma or model

of an income statement of an insurance company:

CAIRO INSURANCE COMPANY

Income Statement
For the year Ended December 31, 2018
Description 2018 2017
Surplus (deficit) of insurance activities: L.E. L.E.
*Life insurance xxx xxx
*Fire insurance xxx xxx
*Accidents and liability insurance xxx xxx
Total xxx xxx
*Net income from un-appropriated investments xxx xxx
*Other revenues xxx xxx
Total revenues xxx xxx
*Depreciation of un-appropriated fixed assets xxx xxx
*Other provisions or allowances xxx xxx
*Miscellaneous expenses xxx xxx
Total expenses xxx xxx
*Net income (loss) before extraordinary items xxx xxx
*Profit (loss) from extraordinary items xxx xxx
*Net income before income taxes xxx xxx
*Income taxes for the year xxx xxx
Net income (loss) after income taxes xxx xxx
Earnings per common share
xx xx

293
 Comprehensive Illustration (3):
The following balances were obtained from the

accounting records of Cairo Insurance Company

at December 31, 2018 for life insurance branch

(amounts in L.E.):

Description L.E.
Direct insurance premiums 1,400,000
Reinsurance premiums accepted 240,000
Reinsurance premiums ceded 380,000
Direct commission to producers 140,000
Reinsurance commission on premiums accepted 24,000
Reinsurance commission on premiums ceded 38,000
Production costs 96,000
Net income from investments 592,000
Other revenues 422,000
Direct claims 858,000
Reinsurance claims on premiums accepted 168,000
Reinsurance claims on premiums ceded 226,000
General and administrative expenses 426,000
Depreciation expenses 26,000
Agents and producers’ salaries 78,000
Reserve fund 570,000
Provision for outstanding claims 266,000

294
Other Information:
1. Reserve fund as on December 31, 2018 is

estimated to be of L.E.550,000.

2. Outstanding claims as on December 31, 2018

totaled L.E.284,000.

3. The following are un-appropriated revenues

and expenses (L.E.):

-Depreciation of fixed assets 35,000

-Interest expense 79,000

-Net income from investments 439,000

-Loss from sale of securities 57,000

-Miscellaneous revenues 354,000

-Interest revenue 178,000

-General and administrative expenses 780,000

295
 -Other expenses 82,000

4. Surplus (deficit) of other insurance branches:

*Fire 866,000

*Accident and liability (222,000)

*Transportation 234,000

*Marine and aviation (199,000)

*Motor Vehicle 122,000

Instructions:
a. Prepare the Revenues and Expenses Account of
life insurance branch for the year ended
December 31, 2018.
b. Prepare the Statement of Revenues and
Expenses of life insurance branch for the year
ended December 31, 2018.
c. Prepare an income statement for the year ended
December 31, 2018.

296
 Solution

Cairo Insurance Company

a. Revenues and Expenses Account (Life
Branch)
For the year Ended December 31, 1018
Direct claims 858000 Technical
+ Reinsurance accepted provisions
claims 168000 Beg. of the year:
Total 1026000 Reserve fund 570000
˗ Reinsurance ceded Outstanding claims 266000 836000
claims (226000)
Net claims 800000 Direct premiums 1400000
Direct commission 140000 + Reinsurance
+ Reinsurance accepted premiums accepted 240000
commission 24000 Total 1640000
Total 164000 ˗ Reinsurance
˗ Reinsurance ceded premiums ceded (380000)
commission (38000) Net premiums 1260000
Net commission 126000 Net income from
Production costs 96000 investments 592000
Agents & producers
salaries 78000 Other revenues 422000
Depreciation expenses 26000
General & Adm. Exp. 426000
Technical provisions:
End of the year:
Reserve fund 550000
Outstanding claims 284000 834000
Surplus 724000
3110000 3110000

297
 Cairo Insurance Company
b. Statement of Revenues and Expenses (Life
Branch)
For the year Ended December 31, 1018
Description L.E. L.E.
Revenues:
Direct premiums 1400000
+ Reinsurance premiums accepted 240000
Total premiums 1640000
˗ Reinsurance premiums ceded (380000)
Net premiums 1260000
Change in reserve funds:
Reserve fund at the beginning of the year 570000
Reserve fund at the end of the year (550000) 20000

Reinsurance commission on premiums ceded 38000

Net income from investments 592000
Other revenues 422000
Total revenues 2332000
Expenses:
Direct claims 858000
+ Reinsurance accepted claims 168000
Total claims 1026000
˗ Reinsurance ceded claims (226000)
Net claims 800000
Change in outstanding claims:
Outstanding claims at the end of the year 284000
Outstanding claims at the beginning of the year (26600) 18000

Direct commission 140000

Reinsurance commission on premiums accepted 24000
Total commission expenses 164000
Production costs 96000
Agents and producers’ salaries 78000
Depreciation expenses 26000

298
General & administrative expenses 426000
Total expenses 1608000
Surplus (deficit) of life insurance activities 724000

Cairo Insurance Company

c. Income Statement
For the year Ended December 31, 1018
Description L.E. L.E.
Surplus (deficit) of insurance activities:
-Life insurance 724000
-Fire insurance 866000
-Accident and liability insurance (222000)
-Transportation insurance 234000
-Marine and aviation insurance (199000)
-Motor vehicle insurance 122000
Total 1525000
-Net income from un-appropriated
investments (439000˗57000) 382000
-Miscellaneous revenues 354000
-Interest revenues 178000
Total revenues 2439000
-Depreciation of fixed assets 35000
-Interest expense 79000
-Other expenses 82000
-General and administrative expenses 780000
Total expenses 976000
*Net income (loss) 1463000

299
8.4 Problems:
Problem 8.1:
The following transactions are performed by

National Insurance Company during the month of

June 2019, regarding life insurance branch:

1. The national Insurance Company signed an

agreement with Suez Insurance Company to

reinsure 25% of its life polices with Suez.

2. The net premiums for polices concluded during

the month amounted L.E.1,600,000, issue fees,

L.E.8,000, and supervision fees, L.E.50,000.

3. Reinsurance premiums accepted totaled

L.E.600,000.

4. Production commissions due to agents and

producers on direct premiums amounted

300
 L.E.140,000. Reinsurance commissions on

premiums accepted from ceding companies

amounted L.E.56,000.

5. The net premiums for renewed polices during

the month was L.E.400,000.

6. Direct premiums collected from the new and

renewed polices during the month were

L.E.1,900,000.

7. Commissions paid to agents and producers

during the month totaled L.E.132,000.

8. Direct claims during the month were

L.E.484,000.

9. Reinsurance claims on premiums ceded

represents 25% of the direct claims and the

301
 reinsurance claims on premiums accepted from

ceding companies totaled L.E.164,000.

10. Total claims paid L.E.420,000.

11. Profit commission on reinsurance

transactions accepted during the month was

L.E.15,200.

12. Profit commission on reinsurance

transactions ceded during the month was

L.E.12,800.

13. Interest on reserve fund withheld on

reinsurance transactions ceded was L.E.2,800.

Instructions:
Prepare the general journal entries for the above

transactions.

302
 Problem 8.2:
The following balances are extracted from the

accounting records of Alexandria Insurance

Company for life insurance branch, for the year

ended December 31, 2019:

Description L.E.
Direct insurance premiums 1,000,000
Direct claims 400,000
Agents and producers’ wages 44,000
Direct commission to producers 130,000
Reinsurance premiums ceded 260,000
Reinsurance premiums accepted 430,000
Reinsurance claims on premiums ceded 120,000
Reinsurance claims on premiums accepted 150,000
Reinsurance commission on premiums ceded 40,000
Reinsurance commission on premiums accepted 52,000
Interest on reserve fund withheld on reinsurance
transactions ceded 5,200
Interest on reserve fund withheld by foreign
companies on reinsurance transactions accepted 3,000
Interest income on loans 28,000
Interest income on bank deposits 13,600
Real estate rental revenues 31,200
Real estate maintenance expenses 10,800
Reserve fund 380,000
Provision for outstanding claims 96,000
303
Revenues from investment securities 107,000
Other revenues 88,800
Other expenses 55,800
Gain on sale of securities 15,600

Additional data:
a. Reserve fund as on December 31, 2019 is

assessed to be of L.E.732,000.

b. Outstanding claims as on December 31, 2019

amounted L.E.160,000.

c. Depreciation expenses of fixed assets used in

life insurance branch for the year totaled

L.E.13,000.

Instructions:
1. Prepare the Net Income from Investments

Account.

304
 2. Prepare the Revenues and Expenses Account of

life insurance branch for the year ended

December 31, 2019.

3. Prepare the Statement of Revenues and

Expenses of life insurance branch for the year

ended December 31, 2019.

Problem 8.3:
The following balances were obtained from the

accounting records of Qena Insurance Company at

December 31, 2019 for life insurance branch

(amounts in L.E.):

Description L.E.
Direct insurance premiums accrued (including
fees of L.E.96,000) 696,000
Reinsurance premiums accepted 80,000
Reinsurance premiums ceded 150,000
Claims (accrued) 260,000
Reinsurance claims on premiums accepted 30,000

305
Reinsurance claims on premiums ceded 50,000
Direct commission to producers and agents 70,000
Reinsurance commission on premiums accepted 12,000
Reinsurance commission on premiums ceded 18,000
Miscellaneous expenses 42,000
General and administrative expenses 150,000
Net income from investments 570,000
Gain on sale of investments 66,000
Managers incentives 58,000
Miscellaneous revenues 75,000
Reserve fund 1,000,000

Other Information:
1. Reserve fund as on December 31, 2019 is

estimated to be of L.E.1,260,000.

2. The following are un-appropriated revenues

and expenses (L.E.):

-Depreciation of fixed assets 57,000

-Income tax expense 105,000

-Net income from investments 177,000

-Incentives to top management 390,000

306
 -Miscellaneous expenses 55,800

-Interest revenue on loans 434,000

-General and administrative expenses 224,000

Instructions:
(1) Prepare the Revenues and Expenses Account
of life insurance branch for the year ended
December 31, 2019.
(2) Prepare the Statement of Revenues and
Expenses of life insurance branch for the year
ended December 31, 2019.
(3) Prepare the income statement of the
company for the year ended December 31,
2019.
Problem 8.4:
The following are the transactions performed by

National Insurance Company (Life Insurance

Branch) during the year ended December 31,

307
2018, noting that the company has an agreement

with Tanta insurance company to reinsure 25% of

its life policies with it.

1- The net premiums for policies concluded

during the month totalled L.E.1,000,000.

2- Reinsurance premiums accepted totalled

L.E.400,000.

3- Production commission due to agents and

producers on direct premiums totalled 10%.

Reinsurance commission on premiums

accepted totalled 10%. Reinsurance

commission on premiums ceded totalled 10%.

4- The net premiums for renewed policies during

the year totalled L.E.200,000.

308
5- Direct premiums collected from the new and

renewed policies during the year totalled

L.E.900,000.

6- Commission paid to agents and producers

during the year totalled 80% of the due

commission.

7- Direct claims during the year totalled

L.E.260,000

8- Reinsurance claims on premiums ceded

represents 25% of the direct claims and the

reinsurance claims on premiums accepted from

ceding companies totalled L.E.90,000.

9- Total claims paid L.E.250,000.

309
10- Reinsurance commission on premiums

ceded L.E.30,000 and reinsurance commission

on premiums accepted L.E.20,000.

11- Interest on reserve fund withheld on

reinsurance transactions ceded L.E.3,000 and

accepted L.E.5,000.

Instructions:
(1) Prepare the general journal entries for the

above transactions.

(2) Using the information provided in the above

transactions and the additional information

provided below, prepare the Revenues and

Expenses Account for the year ended

December 31, 2018, life insurance branch.

310
Additional information:
Agents and producers wages L.E.25,000,

Production expenses L.E.45,000 Interest income

on loans L.E.20,000, Interest income on bank

deposits L.E.10,000, Real estate rental revenue

L.E.30,000, Real estate expenses L.E.8,000,

Revenue from investment securities L.E.55,000,

Other revenues L.E.45,000, Other expenses

L.E.60,000, Loss on sale of securities L.E.40,000,

Computer center expenses L.E.12,000, Reserve

Fund (beginning of year L.E.300,000 and ending

of year L.E.250,000), Provision for outstanding

claims (beginning of year L.E.50,000 and ending

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of year L.E.100,000), and Depreciation expenses

of fixed assets for the year L.E.10,000.

Problem 8.5:
The following are accounting balances from the

books of Alexandria Insurance Company at

December 31, 2018 for the Life Insurance

Branch(L.E.):

-Direct insurance premiums (600,000)

-Direct Claims (220,000)

-Reserve fund (200,000)

-Provision for outstanding claims (55,000)

-Producers’ wages and production expenses

(65,600)

-Direct commission to producers (10%)

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-Reinsurance premiums accepted (250,000)

-Reinsurance premiums ceded (25%)

-Reinsurance commission on premiums accepted

(10%)

-Reinsurance claims on premiums accepted

(70,000)

-Reinsurance claims on premiums ceded (55,000)

-Reinsurance commission on premiums ceded

(12%)

-Interest on reserve fund withheld on reinsurance

ceded (1,200)

-Interest on reserve fund withheld on reinsurance

accepted (1,100)

-Interest income on loans (13,500)

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-Interest income on bank deposits (7,500)

-Real estate rental revenue (16,200)

-Real estate expenses (7,800)

-Revenues from investment securities (55,000)

-Other revenues (38,000)

-Other expenses (59,000)

-Loss on sale of securities (35,900)

Additional information:
Provisions at year end (L.E.): Reserve fund

(285,000), Depreciation expense of fixed assets

for the year (4,800), outstanding claims (75,000).

Instructions:
1- Determine the net Surplus (Deficit) of life
insurance branch for the year ended December 31,
2018.
2- Prepare the Net Income from Investment
Account for that year.

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