BKAR 3063 SPECIALISED FINANCIAL ACCOUNTING

Assignment 5
(Topic 6&7)

Due Date: 24 JUNE 2023/SATURDAY before 11.59 midnight

QUESTION 1

A. Explain FOUR (4) fundamental features in presenting a Statement of Financial Position

for the Financial Institutions in Malaysian, in accordance with the financial statement
rules and regulations for financial institutions.

B. Revenue in banking sector can be recognised based on categories of interest and non-
interest income. Explain the differences between the two categories and their respective
revenue recognition.

C. What is the accounting treatment for previously accrued uncollected interest?

D. Explain the items need to be disclosed in the Statement of Profit and Loss for financial
institutions in Malaysia.

QUESTION 2

A. Iman Jaya Insurance Bhd is a non-life insurance company in Malaysia selling non-life
insurance products. The following information are related to cargos and transit policies
issued by Iman Jaya Insurance Bhd. The company’s financial period ends at 31 December
every year.

Premiums received during the financial year ended 31 December 2020:

Month Cargos and Transit policies
(RM)
January 1,250,400
February 1,340,350
March 99,390
April 3,345,500
May 565,000
June 390,500
July 804,500
August 608,500
September 908,500
October 907,290
November 107,500
 December 251,000

Unearned premium reserve (UPR) balances, acquisition costs and claims:

(RM)
UPR at 31 December 2019 771,840
Deferred acquisition costs at 31 December 2019 106,320
Acquisition costs incurred during 2020 252,000
Outstanding claims at 31 December 2019 571,280
Claims paid during 2020 663,600
Outstanding claims at 31 December 2020 892,800

Additional information:
i. All premiums received were recorded as premium revenues at the date of receipt.
ii. The company also involves in reinsurance arrangements with other insurers for the
cargos and transit policies. During the year 2020, the company paid RM3,379,000 for
outward reinsurance premium.
iii. All policies issued and reinsured by the company mature within a period of one year.
iv. It is assumed that the acquisition costs incurred evenly over the year.
v. Based on past records, 15% of the acquisition costs incurred are non-recoverable.
vi. Other operating expenses of RM46,000 was recorded for the year 2020.

REQUIRED:

(a) Compute unearned premium reserve and deferred acquisition cost at 31 December
2020 for cargos and transit policies if Iman Jaya Insurance Bhd. applies 1/24 th method.
(Show all the working and round of to the nearest RM and cents).

(b) Prepare partial Statement of Profit and Loss for Iman Jaya Insurance Bhd. for the year
ended 31 December 2020.
QUESTION 3

Aku Selamat Insurance Bhd (ASIB), a largest non-life insurance company in Malaysia. ASIB
used to sell non-life insurance products. ASIB had been operating through its three subsidiaries
Sentiasa Selamat Insurance Bhd, Hang Selamat Insurance Bhd and Jalan Selamat Bhd.

ASIB and its subsidiaries had a network of more than 500 offices in Malaysia and their customer
interface included agents, development officers and employees at its branch, divisional and
regional offices of its three subsidiaries. The company had a workforce of 3,500. ASIB also
operated in the international markets in more than 20 countries, either through branches or
subsidiaries. ASIB offered a variety of non-life insurance policies in motor, cargos and transit.

The following information relates to motor, cargos and transit insurance policies issued by Aku
Selamat Insurance Bhd. The company’s financial period ends at 31 December every year.

Premiums received during the financial year ended 31 December 2019:

Date Motor policies Cargos and Total
(RM) transit policies (RM) (RM)
2 January 2019 173,400 112,500 199,200
14 February 2019 187,350 137,100 230,775
23 March 2019 94,380 131,250 178,440
30 April 2019 145,500 165,000 237,750
3 May 2019 165,000 186,750 269,250
8 June 2019 142,500 113,700 184,950
15 July 2019 94,500 103,500 150,750
21 August 2019 203,400 123,000 224,700
17 September 2019 225,600 111,300 224,100
9 October 2019 134,250 160,500 227,625
12 November 2019 267,300 143,400 277,050
28 December 2019 141,000 172,050 242,550
Total 1,974,180 1,660,050 2,647,140

Unearned premium reserve (UPR) balances, acquisition costs and claims:

Motor Cargos and Total
policies transit policies (RM)
(RM) (RM)
UPR at 31 December 2018 771,840 497,880 1,269,720
Deferred acquisition costs at 31 December 2018 106,320 150,240 256,560
Acquisition costs incurred during 2019 252,000 426,000 678,000
Outstanding claims at 31 December 2018 371,280 287,280 658,560
Claims paid during 2019 663,600 573,480 1,237,080
Outstanding claims at 31 December 2019 592,800 476,400 1,069,200
Additional information:
i. All premiums received were recorded as premium revenues at the date of receipt.
ii. The company also involves in reinsurance arrangements with other insurers for the
cargos and transit policies. During the year 2018, the company received RM426,750
for inward reinsurance premium and paid RM558,750 for outward reinsurance
premium.
i. All policies issued and reinsured by the company mature within a period of one year.
ii. It is assumed that the acquisition costs incurred evenly over the year.
iii. Based on past records, 15% of the acquisition costs incurred are non-recoverable.

REQUIRED:

(a) Determine the value of unearned premium reserve at 31 December 2019 for each
type of policy using the following method (Rounded to the nearest ringgit):
a. 1/365th
b. 1/24th
c. 1/8th

(b) Compute the deferred acquisition cost (if any) at 31 December 2019 for each type
of policy if Aku Selamat Insurance Bhd apply the 1/8 th method for both the motor
policies and cargos and transit policies.

(c) Discuss THREE (3) main differences between Islamic and conventional insurance
system.