Question
British American is a resident insurance company carrying out both general and life assurance businesses in Kenya. The following information relates to the insurance companys
British American is a resident insurance company carrying out both general and life assurance businesses in Kenya. The following information relates to the insurance companys financial year ended 31 December 2021:
General insurance Business Life assurance Business
Ksh. 000 Ksh. 000
Insurance premiums received 50,750 86,900
Premiums returned on surrendered policies 8,000 2,000
Re-insurance commission ceded 5,000 -
Premiums paid to re-insurance company 4,000 -
Management expenses 8,400 26,500
Traveling expenses 1,800 2,400
Advertising expenses 364 820
General expenses 8,500 4,600
Bad debts written off (specific) 300 800
Income from exercise of subrogation rights 750 -
Rent and rates 200 450
Staff training expenses 3,000 2,000
Depreciation of equipment 900 1,100
Fines and penalties for late payment of tax 150 50
Repairs and maintenance 50 50
Claims recovered on re-insurance 1,450 -
Additional information
Reserves for unexpired risk for general insurance business was as follows:
General
Business
Ksh. 000
1 January 2021 3,200
31 December 2021 1,700
Claims outstanding were as follows:
General insurance Life assurance
Business Business
Ksh. 000 Ksh. 000
1 January 2021 5,600 3,400
31 December 2021 6,200 2,800
Claims paid during the year ended 31 December 2021 amounted to Ksh. 17,600,000 for General insurance business and Ksh. 16,900,000 for Life assurance business.
The life fund balance was estimated to be ksh 120 million out of which the actuary recommended that ksh 40 million to be transferred to the shareholders
Income from subrogation ksh 7.8 million. Capital allowances was agreed with KRA at ksh. 4 million.
Required: (i) Determine the taxable income or loss of British American Insurance Company Ltd. for the year of income 2021. (12 marks) (ii) Tax payable (if any) by the insurance company (3 marks) (Total: 15 Marks)
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