Changes in the deposit asset (liability), other than the unexpired portion of the coverage provided, are recorded as an accounting against the reimbursable loss.

Question

Options

• ATrue
• BFalse

• A
  16% (8)
• B
  84% (42)

Explanation

Option B is correct because changes in the deposit asset (or liability) - excluding the portion related to unexpired coverage - are not recorded against the reimbursable loss. Instead, those changes are recognized as interest income or expense (a financing element), reflecting the time-value-of-money component inherent in deposit accounting for risk-transfer-deficient contracts.

Option A is wrong because it conflates two distinct accounting entries: the unexpired coverage adjustment (which does relate to loss exposure) and the financing/interest component (which does not). Netting the interest element against the reimbursable loss would misstate both the loss figure and the financing cost.

Memory tip: Think of the deposit like a bank account - the "interest" the deposit earns or accrues goes to the income/expense line, not the claims/loss line. Only the coverage portion touches the loss side.

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