Theories

1. It is the amount that an insurance company pays to a policyholder if the insurance contract is
voluntarily pre-terminated before the maturity date.
a. Variable unit-linked
b. Insurance premiums
c. Cash surrender value
d. Insurance proceeds

19. Which of the following is the correct treatment for cash surrender value?
a. Recognize as a separate asset with corresponding increase in liabilities.
b. Recognize as a separate asset with corresponding decrease in insurance expense.
c. Recognize as a separate asset with corresponding increase in other income.
d. Should not be recognized at all.

20. Dividends received from insurance contract shall be recorded a

a. Dividend income
b. Reduction from insurance expense
C. Reduction of cash surrender value
d. Liability

Problems-Cash Surrender Value

1. On January 1, 2021, AUSTIN Company entered into a P7,000,000 insurance contract for the life of
its president. Annual insurance payments of P200,000 are due every January 1 of each year, starting
in 2021, Cash surrender values as of December 31,2021, 2022, and 2023 amounted to P40,000,
P120,000, and P220,000, respectively In addition, dividends of P10,000 and P15,000 were received
during 2022 and 2023. From this information. determine the amount of insurance expense to be
reported for the years 2021, 2022 and 2023,

2 WHITNEY Company entered into an insurance contract covering the life of its CEO on April 1, 2021.
The face amount of the insurance contract is P10,000,000 and requires annual premium payments of
P240.000 every April 1 of each year, starting in 2021. Cash surrender values amounted to P84,000,
P180,000, P300,000, and P432,000 as of April 1, 2022, 2023, 2024, and 2025, respectively. The
Company has a reporting date of December 31 of each year. From this information, determine the
amount of insurance expense to be recognized for the years 2021, 2022, 2023, and 2024.

3. On January 1, 2021, HOUSTON Company insured the life of its CFO for P8,000,000. The insurance
contract requires annual payments of P360,000 to be made every January 1 of each year, starting in
2021. Cash surrender value for the insurance amounted to P72,000, P162,000 and P264,000 as of
December 31, 2021, 2022 and 2023, respectively. The CFO died on September 30, 2023 with the
Company receiving the insurance proceeds. From this information, determine the following:

A. Insurance expense to be recognized for the years 2021, 2022, and 2023
B. Gain or loss from insurance proceeds

4. On January 1, 2021, LOUISIANA Company insured the life of its CFO for P8,000,000. The insurance
contract requires annual payments of P360,000 to be made every January 1 of each year, starting in
2021. Cash surrender value for the insurance amounted to P72,000, P162,000 and P264,000 as of
December 31, 2021, 2022 and 2023, respectively. The CFO died on September 30, 2023 with the
Company receiving the insurance proceeds. From this information, determine the following:

a. Insurance expense to be recognized for the years 2021, 2022, and 2023
b. Gain or loss from insurance proceeds
5. Going back to LOUSIANA Company, except that the insurance payments of P30,000 are to be made
on the first day of each month. Based on this revised information, determine the insurance expense
for 2023 and the gain or loss from insurance proceeds.