JOINT LIFE POLICY (JLP)
METHOD1: TREAT JLP AS AN EXPENSE
*ON PAYMENT OF PREMIUM
JLP INSURANCE PREMIUM A/C …Dr
TO BANK A/C
*TRAET IT AS AN EXPENSE MEANS Dr. P/L
PROFIT/LOSS A/C…………………. Dr.
TO JLP INSURANCE PREMIUM A/C
*ON DATE OF MATURITY
INSURANCE CO./ INSURANCE CLAIM/
BANK A/C..Dr.
TO OLD PARTNERS CAPITAL A/C
METHOD2: TREAT JLP AS AN ASSET
*ON PAYMENT OF PREMIUM
JLP A/C …..Dr.
TO BANK A/C
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NOTE: NOW AT THE END OF THE YEAR ASSESTS ARE TO BE SHOWN AT THEIR TRUE/REALISABLE VALUE I.E.(SURRENDER VALUE)
BECAUSE THAT IS WHAT IS THE AMOUNT WHICH PARTNERS WILL GET IF THEY DECIDE TO TERMINATE THE POLICY.
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*BOOK VALUE>SURRENDER VALUE, THEN WRITE OFF THE DIFFERENCE BY DEBITING P/L A/C.
PROFIT/LOSS A/C ….Dr.
TO JLP A/C.
NOW HEREAFTER JLP APPEARS AT SURRENDER VALUE IN BOOKS.
*RECIPT OF MAONEY AT THE END OF POLICY TENURE
BANK A/C ….Dr.
TO JLP A/C(AMT. RECEIVED)
*DISTRIBUTE/ PASS THE BENEFIT OF DIFFERENCE AMOUNT AMONGST PARTNERS i.e.(AMOUNT RECEIVED-SURRENDER VALUE)
JLP A/C ………….Dr.
TO OLD PARTNERS CAPITAL A/C
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LOGIC AS TO WHY TO PASS ENTRY OF DIFFERENCE AMOUNT ONLY.
IN METHOD 1 JLP IS TREATED AS AN EXPENSE SO PROFIT/LOSS A/C GETS DEBITED BUT HERE WE DIDN’T DEBIT SO PROFIT IS INFLATED BY PREMIUM AMOUNT AND THAT PROFIT GETS CREDITED TO PARTNERS CAPITAL A/C.
BUT AGAIN WE Dr. P/L A/C FOR BRINGING JLP TO SURRENDER VALUE SO BALANCE PROFIT GETS CREDIETD TO PARTNERS CAPITAL A/C. SO IN THIS METHOD 2 MORE AMT. VIA PROFIT GETS CREDITED TO PARTNERS CAPITAL A/C. AND SO WHEN 5NALLLY CASH IS RECEIVED WE JUST PASS OF DIFFERENCE AMOUNT(RECEIVED AMOUNT-SURRENDER VALUE) BECAUSE THAT IS WHAT IS LEFT OUT FOR GIVING CREDIT TO PARTNERS.
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METHOD 3:JLP RESERVE /FUND ACCOUNT.
*ON PAYMENT OF PREMIUM
JLP A/C …………Dr.
TO BANK A/C
*AT THE END OF EVERY YEAR CREATE RESERVE.
P/L APPROPIATION A/C….Dr.
TO JLP RESERVE A/C.
*BRING BOTH JLP(ASSEST) AND JLP(RESRVE) AT SURRENDER VALUE.
JLP RESERVE A/C ….Dr.
TO JLP A/C.
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NOW BOTH JLP (ASSEST) AND JLP (RESERVE) APPEAR AT SURRENDER VALUE.
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*RECEIPT OF MONEY AT THE TERMINATION OF POLICY.
BANK A/C Dr.
TO JLP A/C
*TRANFER THE BALANCE IN JLP (ASSEST) TO JLP RESERVE A/C.
JLP A/C …..Dr. {BALANCING
TO JLP RESERVE A/C FIGURE}
*TRANSFER THE FULL JLP RESERVE A/C TO OLD PARTNERS CAPITAL A/C IN OLD PSR.
JLP RESERVE A/C ….Dr. {FULL BALANCE
TO OLD PARTNERS CAPITAL A/C OF RESERVEA/C}
KEY POINTS
*ON DEATH OF ANY PARTNER INSTEAD OF SURRENDER VALUE WE GET ENTIRE POLICY VALUE.
*IN CASE OF ANY CHANGE IN PSR SIMILAR ENTIRE AS THAT OF GOODWILL ARE TO BE PASSED OF JLP THAT IS RAISE AND WRITE OFF.
* JLP RESERVE IS MADE OUT OF P/L APPROPRIATION AND THUS AT THE END IT GOES TO PARTNERS A/C.
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