GIM2110 - Accounting framework: annual accounting: Unearned Premium Provision (UPP): example
Motor Insurance Company Ltd has a 31.12.07 accounting period. It enters into the following contracts for motor insurance:
| Contract No. | Date entered into | Premium |
|---|---|---|
| 1 | 1/1/07 | 300 |
| 2 | 27/2/07 | 450 |
| 3 | 1/6/07 | 600 |
| 4 | 5/9/07 | 500 |
| Total premiums | - | 1,850 |
The UPP would be calculated as follows:
| Contract No. | 24ths Method | UPP | 365ths Method | |
|---|---|---|---|---|
| 1 | 1/24 x 300 | 13 | 0/365 x 300 | 0 |
| 2 | 3/24 x 450 | 56 | 57/365 x 450 | 70 |
| 3 | 11/24 x 600 | 275 | 151/365 x 600 | 248 |
| 4 | 17/24 x 500 | 354 | 247/365 x 500 | 338 |
| Total UPP | - | 698 | - | 656 |