Insurance Contracts and Service Concession

INSURANCE CONTRACTS AND SERVICE CONCESSION
ANSWER KEY
1. An insurance contract can contain both deposit and insurance elements. An example might be a
reinsurance contract where the cedent receives a repayment of the premiums at a future time if there are
no claims under the contract. Effectively, this constitutes a loan by the cedent that will be repaid in the
future, PFRS 4 requires that:
a. Each payment by the cedent is accounted for as a loan advance and as a payment for insurance
cover
b. The insurance premium is accounted for as a revenue item in the income statement
c. The premium is accounted for under PAS 18
d. The premium paid is treated purely as a loan and is accounted for under PAS 39
2. Which of the following accounting practices has been outlawed by PFRS No. 4?
a. Shadow Accounting
b. Catastrophe Accounting
c. A test for adequacy of recognized liabilities
d. An impairment test for reinsurance assets
3. Which of the following types of insurance contract would probably not be covered by PFRS 4?
a. Motor insurance c. Life insurance
b. Medical insurance d. Pension plan
4. PFRS 4 says that insurance contracts should:

a. Be covered by existing accounting policies
b. Comply with the PFRS Framework document
c. Comply with all existing PFRS
d. Be covered by PAS 32 and PAS 39 only
5. PFRS 4 was introduced principally for what reason?

a. To ensure that insurance companies could comply with IFRS
b. To completely overhaul insurance accounting
c. As a response to recent scandals within the insurance industry
d. Because of pressure from the financial services authorities in several countries
6. Which IFRS will apply to those contracts that principally transfer financial risk, such as credit derivatives?
a. PAS 32 b. PAS 18 c. PAS 39 d. PFRS 4
7. If an entity gives a product warranty that has been issued directly by a manufacturer, dealer, or retailer,
which PFRS is likely to cover this warranty?
a. PFRS 4 b. PAS 39 c. PAS and PAS 37 d. PAS 32
8. PAS 39 requires an entity to separate embedded derivatives that meet certain conditions from the host
insurance contract that contains them. It also requires the embedded derivative to be measured at fair
value and any changes in fair value to go into profit or loss. An insurer need not separate an embedded
derivative that itself meets the definition of an insurance contract. Which of the following types of
embedded derivatives would need to be fair-valued under PAS 39 when embedded in an insurance
contract?
a. The guarantee of minimum interest rates when determining the surrender or maturity value of a
contract
b. Death benefit linked to equity prices or stock market index payable only on death
c. Policyholder’s option to surrender the insurance contract for a cash value that was specified in the
original insurance contract
d. The guarantee of minimum equity returns that is available only if the policyholder decides to take
a life contingent annuity
9. Insurers can recognize an intangible asset that is the difference between the fair value and book value of
insurance liabilities taken on in business combination. This asset should be accounted for using
a. PAS 38 b. PFRS 4 c. PAS 16 d. None of the above
10. It is an arrangement whereby a public sector entity grants a private concession operator to provide services
that give the public access to major economic and social infrastructure, such as expressway and
telecommunication network.
a. Service concession c. Loan
b. Government grant d. Government assistance
11. The private concession operator shall recognize the infrastructure asset as
a. Intangible asset
b. Financial asset
c. Either intangible asset or financial asset
d. Neither intangible asset nor financial asset
12. The infrastructure asset shall be recognized by the concession operator as an intangible asset when
I. The operator has received a right, not a license, to charge users for the public service
II. The right to charge the users for the public service is not an unconditional right because the
revenue receivable is not agreed upon in advance but is dependent on the use of the asset
a. I only b. II only c. Both I and II d. Neither I nor II
13. The infrastructure asset shall be recognized by the concession operator as a financial asset when
I. The operator has an unconditional contractual right to receive cash over the life of the
arrangement.
II. The grantor has contractually agreed to pay the operator the specified or determinable amount
a. I only b. II only c. Both I and II d. Neither I nor II
14. If the infrastructure asset is recognized by the concession operator as a financial asset, it is accounted for
as
I. Loan receivable
II. Available for sale financial asset
III. Financial asset through profit or loss, if so designated upon initial recognition
a. I only b. II only c. II and III only d. I, II, and II

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INSURANCE CONTRACTS AND SERVICE CONCESSION

4. PFRS 4 says that insurance contracts should:

5. PFRS 4 was introduced principally for what reason?

a. I only b. II only c. Both I and II d. Neither I nor II

a. I only b. II only c. Both I and II d. Neither I nor II

a. I only b. II only c. II and III only d. I, II, and II

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