Warning Ltd writes insurance policies to cover the risk of storms in northern Australia.The policy premiums are expected to be received evenly over the year as they have evenly distributed due dates.Warning Ltd is aware that the risk of storms is 25 times greater in the months between December and March than in the other months of the year.The appropriate discount rate for Warning Ltd is 11%.If the total amount of insurance premiums to be received is $400 000,what is the pattern of revenue recognition in accordance with AASB 1023 (round amounts to the nearest dollar)?

Question

Quizplus · Accepted Answer

According to AASB 1023, revenue recognition should be based on the actual occurrence of events that give rise to the revenue. In this case, the risk of storms is 25 times greater in the months between December and March, so it is appropriate to recognize a higher amount of revenue during these months. Therefore, the revenue recognition pattern should be $82,407 in December to March and $3296 each other month, which is consistent with choice B.

Warning Ltd Writes Insurance Policies to Cover the Risk of Storms