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IFRS 17Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIFRS 17 · IFRS 9L1 · Fundamental

Insurance contract or not: definition, significant risk, exclusions, scope choice and separation of components

8 documents9 tasks≈ 45 min
0 / 11 items completed
Standards
IFRS 17 — Insurance ContractsIFRS 9 — Financial Instruments
Assistance levelFull guidance · strong assistance
  • Method: shown
  • Checklist: shown
  • Hints: shown
  • Step-by-step work: shown

Case brief

Situation

Belmora SA (fictitious entity), a maker and distributor of electric bicycles, closes its accounts on 31 December 20X6. It and its subsidiary sell six contracts. You prepare the qualification note: for each one, the standard that applies.

Your assignment

State which contract transfers significant insurance risk; say for the savings plan whether the risk is significant; identify the contracts excluded from IFRS 17 and the standard that applies; say whether the maintenance plan opens a choice and on what conditions; spot the component to separate from the indexed contract; draw up the table of the standard applying to each contract, record the premium of contract A, present the effect on the financial statements and conclude. One document is not useful.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Fundamental level: the method, help and references are shown.

Method

  1. Read the brief and the assignment.
  2. Open each document and spot the relevant data.
  3. Carry out the work in the suggested order.
  4. Submit, then read the conclusion and the model answer.

File checklist

  • Open each piece (0 / 8 consulted) · to do
  • Sort the information in the pieces · to do
  • Carry out the work (0 / 11) · to do
  • Submit the file, then assess yourself · to do

Documents

File documents

8 documents: open each one to read it.

Document 1Memo

Group profile and case conventions

Belmora SA (fictitious entity) makes and distributes electric bicycles and owns an insurance subsidiary; it closes its accounts on 31 December 20X6, in EUR. Case conventions: the case deals only with the qualification of the contracts; case convention (pedagogical assumption, not attributed to IFRS 17): no entity of the group has stated in advance that it treats financial guarantees as insurance contracts, and the embedded derivative of contract F is not an insurance contract and is not closely related to the host contract.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Annual premium of the theft cover€120.00
Compensation limit€3,000.00
Price of the bicycle sold with the warranty€2,400.00
Guaranteed loan€50,000.00
Annual fee€90.00
Payment by the customer€10,000.00
Single premium of contract F€8,000.00
Amount paid on death€20,000.00
Stand invoice€18,000.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort8

  • Group profile and case conventions

  • Contract A: theft cover

  • Contract B: manufacturer warranty

  • Contract C: guarantee given to a bank

  • Contract D: maintenance plan

  • Contract E: savings plan

  • Contract F: indexed contract

  • Invoice for a trade fair stand

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      9 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Analysis

        Which contracts meet the definition of an insurance contract, and why?

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      2. Task 2Professional judgement

        Savings plan E: is the insurance risk significant?

        Distinguish the case data, the assumption and your judgment.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      3. Task 3Analysis

        Contracts B and C: are they within IFRS 17? If not, what follows for their accounting?

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      4. Task 4Professional judgement

        Contract D: are the conditions of the choice met, and what can the entity do?

        Distinguish the case data, the assumption and your judgment.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      5. Task 5Analysis

        Contract F: which component must be separated, and under which standard is it accounted for?

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      6. Task 6Analysis

        Draw up the table of the standard applying to each contract.

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      7. Task 7Journal entries

        Record the premium of contract A.

        Identify the accounts affected and the direction of each movement; check the balance.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      8. Task 8Effects on the financial statements

        What is the effect of the entry on the financial statements?

        For each financial statement, state the line affected, the direction and the amount.

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      9. Task 9Conclusion

        Write the conclusion.

        Write a conclusion that cites the facts and the treatment chosen.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 11).

      Normative references

      • IFRS 17 §7
      • IFRS 17 §8