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In trial balance of year ending 31.3.2017, life insurance premium is given 55000.
adjustment:
Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.?
adjustment:
Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.?
Most Upvoted Answer
In trial balance of year ending 31.3.2017, life insurance premium is g...
Adjusting the Life Insurance Premium in the Final Accounts
The given adjustment requires us to separate the life insurance premium into two parts:
1. The premium paid towards proprietor's life insurance policy
2. The insurance charges covering the period from 1.4.2016 to 30.6.17.
This adjustment needs to be made in the final accounts in the following manner:
Income Statement:
- The premium paid towards proprietor's life insurance policy should be shown as drawings in the income statement since it is a personal expense of the proprietor and not a business expense.
- The balance of the insurance charges covering the period from 1.4.2016 to 30.6.17 should be shown as an expense in the income statement for the year ending 31.3.2017.
Balance Sheet:
- The premium paid towards proprietor's life insurance policy should be shown as a deduction from the proprietor's capital in the balance sheet since it is a personal expense of the proprietor.
- The balance of the insurance charges covering the period from 1.4.2016 to 30.6.17 should be shown as a current asset in the balance sheet since it is an expense that has been paid in advance and will be utilized in the future.
Therefore, the final accounts should be adjusted as follows:
Income Statement
- Life insurance premium: 15,000 (55,000 - 40,000)
Balance Sheet
- Proprietor's capital: (deduct) 40,000
- Prepaid insurance: 15,000
This adjustment ensures that the final accounts reflect the true financial position and profitability of the business.
The given adjustment requires us to separate the life insurance premium into two parts:
1. The premium paid towards proprietor's life insurance policy
2. The insurance charges covering the period from 1.4.2016 to 30.6.17.
This adjustment needs to be made in the final accounts in the following manner:
Income Statement:
- The premium paid towards proprietor's life insurance policy should be shown as drawings in the income statement since it is a personal expense of the proprietor and not a business expense.
- The balance of the insurance charges covering the period from 1.4.2016 to 30.6.17 should be shown as an expense in the income statement for the year ending 31.3.2017.
Balance Sheet:
- The premium paid towards proprietor's life insurance policy should be shown as a deduction from the proprietor's capital in the balance sheet since it is a personal expense of the proprietor.
- The balance of the insurance charges covering the period from 1.4.2016 to 30.6.17 should be shown as a current asset in the balance sheet since it is an expense that has been paid in advance and will be utilized in the future.
Therefore, the final accounts should be adjusted as follows:
Income Statement
- Life insurance premium: 15,000 (55,000 - 40,000)
Balance Sheet
- Proprietor's capital: (deduct) 40,000
- Prepaid insurance: 15,000
This adjustment ensures that the final accounts reflect the true financial position and profitability of the business.
Community Answer
In trial balance of year ending 31.3.2017, life insurance premium is g...
Life insurance premium : 55000
(-) sole proprietors premium : 40000
actual premium paid = 15000 is for 15months i.e from 1st april 2016 to 30june2017.
but the financial year ends on 31st march so there is a prepaid amount paid for 3months.( frm 31 march to june)
for 15months amount paid : 15000
for 3months amount : 15000*3/15 = 3000 (prepaid amount)
15000- profit and loss account debit side
(-) 3000- prepaid amount pl acc debit side and balance sheet assets side.
40000 ( sole proprietors premium) will be deducted from total capital ie after adding net profit and deducting drawings)
i hope you understood.
thankyou.
(-) sole proprietors premium : 40000
actual premium paid = 15000 is for 15months i.e from 1st april 2016 to 30june2017.
but the financial year ends on 31st march so there is a prepaid amount paid for 3months.( frm 31 march to june)
for 15months amount paid : 15000
for 3months amount : 15000*3/15 = 3000 (prepaid amount)
15000- profit and loss account debit side
(-) 3000- prepaid amount pl acc debit side and balance sheet assets side.
40000 ( sole proprietors premium) will be deducted from total capital ie after adding net profit and deducting drawings)
i hope you understood.
thankyou.
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In trial balance of year ending 31.3.2017, life insurance premium is given 55000. adjustment: Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.?
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In trial balance of year ending 31.3.2017, life insurance premium is given 55000. adjustment: Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about In trial balance of year ending 31.3.2017, life insurance premium is given 55000. adjustment: Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for In trial balance of year ending 31.3.2017, life insurance premium is given 55000. adjustment: Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.?.
In trial balance of year ending 31.3.2017, life insurance premium is given 55000. adjustment: Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about In trial balance of year ending 31.3.2017, life insurance premium is given 55000. adjustment: Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for In trial balance of year ending 31.3.2017, life insurance premium is given 55000. adjustment: Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.?.
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In trial balance of year ending 31.3.2017, life insurance premium is given 55000. adjustment: Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.?, a detailed solution for In trial balance of year ending 31.3.2017, life insurance premium is given 55000. adjustment: Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.? has been provided alongside types of In trial balance of year ending 31.3.2017, life insurance premium is given 55000. adjustment: Insurance premium includes 40000 paid towards proprietor's life insurance policy and the balance of the insurance charges cover the period from 1.4.2016 to 30.6.17. How do you show it in final accounts.? theory, EduRev gives you an
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