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CMA Intermediate · Corporate Accounting and Auditing · Auditing of Different Types of Undertakings

A general insurer wrote a one-year policy on 1 October 2025 with a premium of ₹1,20,000, and the insurer follows the 1/365 method for unearned premium. For the year ended 31 March 2026, what premium is earned and what is the unearned portion (ignore leap-year effect; the period 1 Oct to 31 Mar is 182 days)?

Under the 1/365 method, earned premium is 1,20,000 × 182/365 = ₹59,836 and unearned is ₹60,164. The earned portion covers only 182 days of the 365-day policy, so the rest is deferred as unearned premium reserve.

  1. AEarned ₹59,836; unearned ₹60,164Correct
  2. BEarned ₹60,000; unearned ₹60,000
  3. CEarned ₹60,164; unearned ₹59,836
  4. DEarned ₹1,20,000; unearned nil

Explanation

Earned = 1,20,000 × 182/365 = ₹59,836 (approx). Unearned = 1,20,000 − 59,836 = ₹60,164. Splitting 6/12 gives ₹60,000 but that is not the 1/365 method. Reversing earned and unearned figures is the common error. Check: 59,836 + 60,164 = 1,20,000.

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