Hazard Ltd writes insurance policies to cover the risk of fire in northern New South Wales.The policy premiums are expected to be received evenly over the year as they have evenly distributed due dates.Hazard Ltd is aware that the fire risk is eight times greater in January,February and March than it is the rest of the year.The appropriate discount rate for Hazard Ltd is 12 per cent.If the total amount of insurance premiums to be received is $50,000,what is the pattern of revenue recognition in accordance with AASB 1023 (round amounts to the nearest dollar)?

Question

Quizplus · Accepted Answer

AASB 1023 requires revenue recognition to be done based on the pattern of risks and rewards, which is determined by the timing and value of the insurance premiums. As the fire risk is eight times greater in January, February and March than the rest of the year, the revenue recognition should be higher during these months. Therefore, $12,121 should be recognized in each of these months, and $1,515 in each other month, which totals to $50,000 in a year.

Hazard Ltd Writes Insurance Policies to Cover the Risk of Fire