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Dear sir
Question
Issue
Bank has provided the staff loan facility covering by insurance policy .
Loan to staff made $500000
Bank accounted this as
Dr staff loan (advance ) 500000
Cr cash or bank 500000
Staff are liable to pay the insurance premium for 20yrs not liable for loan payment nor the intrest payment .
Cash received from the insurance after maturity period is $150000 and bank has right to receive that cash at maturity . Employee have no right to receive that cash as they made contract with bank .
What issue need to be considered and what is accounting treatment ?
Staff are paying 500000/20 as premium to insurance .Where’s this question from – I don’t recognise it.
Give me an exam reference date and I can read the proper story rather than your abbreviated version
Sorry sir this is not the question that came in exam that question has asked by our tution provider at the time of mock exam .
Question
The FMDB bank has provided loan to staff of$ 370,000.00 for making home through the way of life insurance policy contract with employee .
Employee is liable to pay premium on insurance policy but not liable for instrest payment and principal amount payment to FMDB.
The beneficiary is the FMDB by making seperate contact with employee any benefit received from the insurance policy is right of FMDB ie. Employee have no right to access the payment by insurance after 20year .
The premium paid to this year by employee is $18500.
Management has accounted and told to auditor that
Dr staff loan 370,000.00
Cr bank 370,000.00
This will be kept as it is for 20years .
They will credit the staff loan account once the FMDB realise d the payment from insurance and excess amount of 370,000.00 will recognised as income after 20yrs time .Is this right accounting treatment of FMDB management and what issue you will consider with audit procedure.
If necessary suggest the appropriate accounting treatment . 15marks1) Clearly, it’s not the correct accounting treatment. Otherwise, there would not be the requirement to “suggest the appropriate accounting treatment”
2) A further indication is that, if this were the correct treatment, how could you draw your answer out sufficiently for it to be worth 15 marks?
3) Finally, you should realise that I am not here for the purposes of doing your college assignments!
Sorry 🙁
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