130 . unexpired risks at 50 per cent for Fire, Marine Cargo and Miscellaneous business except for Marine Hull which has to be 100 per cent. It may be mentioned that the insurance companies are governed by the provisions of Section 44 of the Income tax Act, 1961. In this regard, Rule 5 of the First Schedule to the Income tax Rules - computation of Profit & Loss of General Insurance Business - provides for creation of a reserve for unexpired risks as prescribed under Rule 6 of the said Rules. According to this Rule, the insurance companies are allowed a deduction of 50 per cent of net premium income in respect of Fire and Miscellaneous Business and 100 per cent of the net premium income relating to Marine Insurance business. In view of this the reserves are created at the rates allowed under the Income-tax Act. Additional reserve for unexpired risk In a particular year the management may feel that the percentage of premium recommended by the General Insurance Council is not sufficient to meet the unexpired risks. In such a situation they may provide additional reserve. Such additional reserve for unexpired risk will also be debited to the revenue account. The balance will be shown in the balance sheet as in the case of normal reserve for unexpired risk, and will be transferred to the credit of next year's revenue account. Illustration 1 Indian Insurance Co. Ltd. furishes you with the following information (1) On 31.12.2011 it had reserve for unexpired risk to the tune of 40 crores. It comprised of 15 crores in respect of marine Insurance business : 720 crores in respect of fire insurance business and 75 crores in respect of miscellaneous insurance business. (ii) It is the practice of Indian Insurance Co. Ltd. to create reserves at 100% of net premium income in respect of marine insurance policies and at 50% of net premium income in respect of fire and miscellaneous income policies. (ii) During 2012, the following business was conducted: Marine Fire Miscellaneous (in crores) 12 4 Premia collected from (a) Insureds in respect of policies issued 18 43 (b) Other insurance companies in respect of risks undertaken 7 5 Premia paid/payable to other insurance companies on business ceded 6.7 4.3 Indian Insurance Co. Ltd. asks you to : (a) Pass journal entries relating to "Unexpired risks reserve". (b) Show in columnar form "Unexpired risks reserve" a/c for 2012 7