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Under _________ the premium paid is treated as an ordinary expense and joint life policy does not appear as an asset in the Balances Sheet of the firm:
- a)Ordinary Business Expenses Method
- b)Surrender Value Method
- c)Joint Life Policy Reserve Method
- d)Sinking Fund Method.
Correct answer is option 'A'. Can you explain this answer?
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Under _________ the premium paid is treated as an ordinary expense and...
Explanation:
Under the Ordinary Business Expenses Method, the premium paid for the joint life policy is treated as an ordinary expense of the business, and it does not appear as an asset in the Balance Sheet of the firm. Here are some key points that explain the method in detail:
1. Definition: Ordinary Business Expenses Method is a method of accounting for joint life policies where the premium paid is treated as an ordinary expense of the business.
2. Treatment of Premium Paid: Under this method, the premium paid for the joint life policy is treated as an ordinary expense of the business, and it is debited to the Profit and Loss Account.
3. Treatment of Policy: The joint life policy does not appear as an asset in the Balance Sheet of the firm under this method.
4. Tax Treatment: The premium paid for the joint life policy is allowed as a deduction while calculating the taxable income of the business.
5. Applicability: This method is suitable for businesses where the joint life policy is taken for the purpose of protecting the business from financial loss due to the death of a key employee or partner.
Conclusion:
In conclusion, the Ordinary Business Expenses Method is a simple and straightforward method of accounting for joint life policies. It is suitable for businesses where the policy is taken for the purpose of protecting the business from financial loss due to the death of a key employee or partner. Under this method, the premium paid is treated as an ordinary expense of the business, and the joint life policy does not appear as an asset in the Balance Sheet of the firm.
Under the Ordinary Business Expenses Method, the premium paid for the joint life policy is treated as an ordinary expense of the business, and it does not appear as an asset in the Balance Sheet of the firm. Here are some key points that explain the method in detail:
1. Definition: Ordinary Business Expenses Method is a method of accounting for joint life policies where the premium paid is treated as an ordinary expense of the business.
2. Treatment of Premium Paid: Under this method, the premium paid for the joint life policy is treated as an ordinary expense of the business, and it is debited to the Profit and Loss Account.
3. Treatment of Policy: The joint life policy does not appear as an asset in the Balance Sheet of the firm under this method.
4. Tax Treatment: The premium paid for the joint life policy is allowed as a deduction while calculating the taxable income of the business.
5. Applicability: This method is suitable for businesses where the joint life policy is taken for the purpose of protecting the business from financial loss due to the death of a key employee or partner.
Conclusion:
In conclusion, the Ordinary Business Expenses Method is a simple and straightforward method of accounting for joint life policies. It is suitable for businesses where the policy is taken for the purpose of protecting the business from financial loss due to the death of a key employee or partner. Under this method, the premium paid is treated as an ordinary expense of the business, and the joint life policy does not appear as an asset in the Balance Sheet of the firm.
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Under _________ the premium paid is treated as an ordinary expense and joint life policy does not appear as an asset in the Balances Sheet of the firm:a)Ordinary Business Expenses Methodb)Surrender Value Methodc)Joint Life Policy Reserve Methodd)Sinking Fund Method.Correct answer is option 'A'. Can you explain this answer?
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