AS standard reference

Hi,

Intangible assets standard does not deal with capitalising insurance costs- "over heads that are necessary to generate the asset and that can be allocated on a reasonable and consistent basis to the asset (for example, an allocation of the depreciation of fixed assets, insurance premium and rent)" why allocated? Prepaid insurance is not amortised, but expensed upon expiry or redeemed if there is a financial guarantee (redeemable once can be made as asset).

Revenue standard in AS does not define prepaid expenses.

I tried fair value measurements standard and no luck there.

I tried Indas 119 and- Unconditional receivables and payables are recognised as assets or liabilities when the entity becomes a party to the contract and, as a consequence, has a legal right to receive or a legal obligation to pay cash. maybe this is it !!

Can someone please guide me to the relevant standard, paragraph which will expound how guaranteed benefit is treated in the policyholders books?

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:

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.
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.
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.
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).