My question is with respect to Chapter 16, question 1(iv) while analysing the expense surplus. The actual expense amount of $25 has been used to calculate the actual assets. But the actual liabilities have been stated as "No Change". Why is the actual expense amount of $25 not used to calculate the actual liabilities?
Hi Nitisha This is because the valuation basis for the expenses do not change at the end of the year - it remains at $30pa as shown in the table in the question. Thanks Em
Thanks for a quick reply. Going further on Investment return surplus analysis, why is the valuation rate of 4% at the end of year not used to calculate liabilities?
Good question This is because it has been carried out as a separate calculation below it; titled 'change of valuation basis'. You can test this by updating the assurance and annuity factors in your liability calculation for the investment step and comparing it with the liability calculation in the previous step. You should get 543,863. (Which corresponds to a negative surplus.) Companies may well decide to present it as a separate calculation. Does this help? Thanks Em
If the expenses in valuation basis had been $28, then where would that be accounted for: Expense surplus or change in valuation basis surplus?
Hi Nitisha I would carry it out separately to make it clear, so include it as a valuation basis change. Thanks Em
