Hi, I was going through the accounts question on 27.8 and I had a question on how the mid year cashflows are calculated. The Calculation for mid-year cash flow is 0.75*1800 in premiums, 1172.8 in claims and 89.85 in other expenses What is the logic for 89.85? The question does not state this and how has this arrived upon? And also, shouldnt the 0.75*1800 account for the fact that premiums are received 3 months late? Also, where did the 3/7 come for the tax (i.e., tax at 30% can be deduced from this as 3/7 x (720 - FR))?
I think most of the answers to your queries are actually covered in the solutions on pages 33 to 36 of the Chapter. On page 34, we deduce total expenses and commission are 539.85 Commission is 25% of WP of 1800 = 450 Hence other expenses are 539.85 - 450 = 89.85 The 75% of 1800 allows for the premium received net of 25% commission. The delay in receiving the premiums from the broker is allowed for in the section headed 'Non-invested funds' at the top of page 35 For the tax, if we know that the profit after (30%) tax is PAT, then profit before tax = PAT / 70%, so tax = 30% * PAT / 70%
