AS standard reference

Hey Yasaswi! You’ve raised a pretty nuanced query about insurance costs and guaranteed benefits from the policyholder’s perspective under AS and Ind AS.

Here’s a quick breakdown:

1. Insurance costs and overhead allocation in AS (Accounting Standard 10 - Fixed Assets)
   AS 10 allows capitalization of overheads only if they are directly attributable to bringing the asset to working condition. Insurance premium is treated as an overhead if it relates directly to the asset’s usage or protection during construction/installation phase.
   The phrase “allocated on a reasonable and consistent basis” means only the portion of insurance cost reasonably related to the asset’s construction can be capitalized — not prepaid insurance unrelated to the asset.

2. Treatment of prepaid expenses in AS
   AS does not specifically define prepaid expenses. They’re generally treated as current assets and expensed over the period to which they relate, not capitalized as part of asset cost.

3. Regarding guaranteed benefits and prepaid insurance
   AS lacks explicit guidance here, which is why you didn’t find anything directly.
   Ind AS 109 (Financial Instruments) and Ind AS 37 (Provisions, Contingent Liabilities and Contingent Assets) may provide some pointers.
   Also, Ind AS 115 (Revenue from Contracts with Customers) and Ind AS 17 (Leases) might help if related to service or lease contracts.
   But mostly, insurance contracts with guaranteed benefits are dealt with in Ind AS 104 (Insurance Contracts), which would provide detailed guidance on recognition and measurement from the policyholder’s point of view.

4. Policyholder accounting for guaranteed benefits
   Usually, from the policyholder’s side, guaranteed benefits are recognized as financial assets under Ind AS 109, measured either at amortized cost or fair value depending on the contract terms.
   If guaranteed benefits are part of an insurance contract, Ind AS 104 will guide recognition and measurement.

Summary for your question:

• No explicit AS standard details guaranteed benefits or prepaid insurance treatment fully.

• For insurance contracts, Ind AS 104 is your best bet for detailed guidance on guaranteed benefits.

• For policyholders’ accounting, Ind AS 109 on financial instruments may apply.

• Prepaid insurance itself is treated as an asset and expensed over the period of coverage (general accounting practice).

• Overhead allocation applies only when it is directly attributable and reasonable to allocate to asset cost (AS 10).