Published on March 28, 2014
INTRODUCTION Regulation Of Insurance Business In India Insurance Act-1938 IRDA Act-1999 Insurance Amendment Act-2002 IRDA has prescribed in specified formats for preparation of financial statements of insurance business in part V of ‘schedule A’ of IRDA regulations 2002. Insurance Act,1938 &IRDA Act,1999 provide legal framework of insurance accounting in India. Financial statements also to be in conformity with the accounting standards issued by the Institute of Charted Accountants of India(ICAI).
ACCOUNTS OF INSURANCE COMPANIES Accounting point of view: Business of Insurance 1.Life Insurance Business 2.General Insurance Business Incomes Major income- Premium Other Sources – i. interest ii. Dividends on investments iii. Rent earned from properties let out etc.
Expenses 1. Settlements of claim 2. Annuities 3. Bonus payment 4. Commission paid to agent 5. Office & managerial expenses 6. Income tax & Other taxes Profit or loss = All incomes – Revenue expenses
BOOKS FOR MAINTENANCE OF ACCOUNTS 1.Statutory Book :- Consist of 3 registers Register of policies:- Name & address of policy holder, date of policy etc Register of claims:- Date of claim, name & address of claimant etc Register of licensed insurance:- Name of Insurance agent, address, no. of license, commission due etc 2. Subsidiary Book :- Register of proposal, premium register, general cash book, commission register, cash receipt register etc
FINAL ACCOUNTS OF LIFE INSURANCE COMPANIES 1. REVENUE ACCOUNT Sets out all income & expenses relating to the insurance business. income includes a) Premium after adjusting reinsurance ceded & reinsurance accepted b) Income from investments Expenses includes a) Commission b) Operating expenses c) Benefits paid d) Bonus paid e) Change in valuation of liability against life policies in force
2. PROFIT AND LOSS ACCOUNT All income and expenses relating to shareholders account. income comprises of:- a) Depreciation relating to assets held by shareholder’s fund, investment expenses, directors fund. b) Transfer of funds to policy holder’s fund. c) Preliminary expenses written off. 3. Balance sheet includes:-a)share holders fund b) policy holders fund c) investments related to policy holder’s fund
4.Receipts and payments Account Cash flow statements of insurance company needs to be worked out as directed method as per IRDA requirements. Major items are:- a) Operating activities:- Receipts and payments from policy holders, payment to reinsurers agent, employee expenses & investment income. b) Investing activities:-Purchase and sales of investment, purchase of fixed assets c) Financing activities:- Issue of share capital or raising of funds from other sources.
Segmental Reporting :- Have to prepare segment wise revenue account and balance sheet of the business. The company has to report segment results separately for :- Participating Non participating Pension Annuity business unit linked business
FINAL ACCOUNTS OF GENERAL INSURANCE COMPANIES a) Revenue account A separate revenue account is prepared for each type of business. Eg: fire, marine etc. It records: incomes & expenses of particular business, profit/loss is transferred to profit & loss account. b)Profit & loss account It records incomes & expenses of general nature and it show how profit has been appropriated in addition to profit/loss of different business. Its balance is shown in balance sheet. c) Balance sheet It records various assets and liabilities of General insurance companies.
CONCLUSION Business of insurance having much importance in India nowadays. Insurance Regulatory Authority regulates the insurance business in India. Accounts of insurance companies are divided into two heads such as final accounts of life insurance and final accounts of general insurance. Both the business accounts contain revenue account, profit & loss accounts and balance sheet in common. In addition to this, life insurance contains receipts and payments account and segmental reporting. it must be observed that difference in revenue account reveals profit or loss of business.
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