INSURANCE POLICY RECOGNITION

Hi,

A business purchased car for PPE and insurance for three years worth 3000₹. This is treated as prepaid insurance and capitalised.

Initial Recognition:

By Prepaid insurance a/c 3000

To Bank a/c 3000

At year end:

By Insurance expense a/c 1000

To Expired Prepaid insurance a/c 1000 so on for three years

Instead, expense it as allowable like below:

By Insurance expense a/c 3000

To Bank a/c 3000

and this will reduce the tax liability by 3000:

By Insurance expense a/c 3000

To Current Tax Liability a/c 3000

So, what is the rationale behind capitalising purchased insurance policy when the balance sheet tallies both the ways?