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322 ADVANCED It would be practically impossible for a Life Assurance Company to determine annually the exact increase in its liability in respect of each policy, and to keep accounts in respect of each such policy, crediting the Policy Account and debiting Revenue with every such increase at the close of the year. Ajjart from the enormous amount of bookkeeping involved, to very little purpose, the cost of accurately ascertaining the " present value " of the liability in each case would, with these undertakings, be absolutely prohibitive, and would, moreover, involve great delay in the preparation of the annual accounts. These undertakings (which, it may be mentioned, are regulated by the Life Assurance Companies Act, 1870, which prescribes the form in which their accounts are to be kept) are worked uj)on the lines that their annual accounts are interim accounts only, and do not attempt to estimate the profits of the year under review. The calculation of profits only takes place when what is called a " Valuation " Balance Sheet is prepared —once every three, five, or seven years, according to the constitution of the particular company concerned. The Valuation Balance Sheet is based upon an actuarial valuation of the liabilities of the undertaking in respect of all the policies then in force, the value of such liability in ?ach case being arrived at as follows : — Taking the expectation of life of the assured at n years, the gross liability is the present value of the amount of the policy, due n years hence. From this must be deducted the present value of an annuity, payable for n years, of the net premium payable under the policy {i.e., the actual premium, minus the "loading" that has been added to cover expenses of management). ACCOUNTING. Upon the above basis, the actuaries arrive at the total present value of the net liabilities of the undertaking to date, and the profits earned during the period are computed by single entry, as being the difference between the present value of the aggregate net liabilities, and the net assets available to meet those liabilities. The profits of Friendly Societies having a benefit branch are computed upon the same lines, the actuarial valuation in their case being undertaken every five years. A similar method of arriving at profits is frequently employed by Building Societies, to enable them to discover the gross profit earned from the lending of money on mortgages repayable over a term of years by equalised payments, and the liabilities incurred by agreeing to pay subscribing investors a fixed sum at the end of a term of years in return for a monthly (or other periodical) payment. As has already been explained in Chapter XXL, however, no difficulty need arise in the formulation of Building Societies,' and other similar, accounts upon a complete doubleentry basis. The actual interest to be debited to each Mortgage Account, and credited to each Investment Account, may'be readily ascertained from properlydesigned tables. The essential advantage of keeping these accounts by doubleentry arises from the fact that a complete and effective audit may by that means be far more readily accomplished; while the ex])erience of the past has shown that, in connection with these particular undertakings, such an audit is absolutely essential for the security of all interested parties.
Beschrijving voorwerp
Titel  Advanced accounting 
Auteur  Dicksee, Lawrence Robert 
Jaartal  1903 
Collectienaam  NIVRA Limperg, UBVU gedigitaliseerd 
PPN  34448369X 
Toegangsgegevens (URL)  http://imagebase.ubvu.vu.nl/getobj.php?ppn=34448369X 
Signatuur origineel  LIMPERG295 
Evaluatie 
Beschrijving
Titel  LIMPERG295_00334 
Transcript  322 ADVANCED It would be practically impossible for a Life Assurance Company to determine annually the exact increase in its liability in respect of each policy, and to keep accounts in respect of each such policy, crediting the Policy Account and debiting Revenue with every such increase at the close of the year. Ajjart from the enormous amount of bookkeeping involved, to very little purpose, the cost of accurately ascertaining the " present value " of the liability in each case would, with these undertakings, be absolutely prohibitive, and would, moreover, involve great delay in the preparation of the annual accounts. These undertakings (which, it may be mentioned, are regulated by the Life Assurance Companies Act, 1870, which prescribes the form in which their accounts are to be kept) are worked uj)on the lines that their annual accounts are interim accounts only, and do not attempt to estimate the profits of the year under review. The calculation of profits only takes place when what is called a " Valuation " Balance Sheet is prepared —once every three, five, or seven years, according to the constitution of the particular company concerned. The Valuation Balance Sheet is based upon an actuarial valuation of the liabilities of the undertaking in respect of all the policies then in force, the value of such liability in ?ach case being arrived at as follows : — Taking the expectation of life of the assured at n years, the gross liability is the present value of the amount of the policy, due n years hence. From this must be deducted the present value of an annuity, payable for n years, of the net premium payable under the policy {i.e., the actual premium, minus the "loading" that has been added to cover expenses of management). ACCOUNTING. Upon the above basis, the actuaries arrive at the total present value of the net liabilities of the undertaking to date, and the profits earned during the period are computed by single entry, as being the difference between the present value of the aggregate net liabilities, and the net assets available to meet those liabilities. The profits of Friendly Societies having a benefit branch are computed upon the same lines, the actuarial valuation in their case being undertaken every five years. A similar method of arriving at profits is frequently employed by Building Societies, to enable them to discover the gross profit earned from the lending of money on mortgages repayable over a term of years by equalised payments, and the liabilities incurred by agreeing to pay subscribing investors a fixed sum at the end of a term of years in return for a monthly (or other periodical) payment. As has already been explained in Chapter XXL, however, no difficulty need arise in the formulation of Building Societies,' and other similar, accounts upon a complete doubleentry basis. The actual interest to be debited to each Mortgage Account, and credited to each Investment Account, may'be readily ascertained from properlydesigned tables. The essential advantage of keeping these accounts by doubleentry arises from the fact that a complete and effective audit may by that means be far more readily accomplished; while the ex])erience of the past has shown that, in connection with these particular undertakings, such an audit is absolutely essential for the security of all interested parties. 
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