Rule 31. Pre-Need Uniform Chart of Accounts (PNUCA), Brief Description, and Their Financial Statements Presentation.

31.1. The Pre-Need Uniform Chart Of Accounts (PNUCA) in the following format shall be used by every Pre-Need Company in the accounting and reporting of their operations and of the Trust Funds for each type of Pre-Need Plan that said Company is authorized to sell: 

1.  Balance Sheet Accounts 

a.   Current Assets 

(i)    Cash on Hand and in Banks 

The caption “cash” or “cash on hand or in banks” includes currency or cash items on hand (such as cash items awaiting deposit and cash in working funds) as well as peso or foreign currency deposit in banks which are unrestricted and immediately available for use in current operations.  Foreign currency deposits shall be recorded at their respective foreign currency amounts and at their local currency equivalent at the applicable rate of exchange on transaction date. Notes to financial statements shall include disclosure of the amount of foreign currency in US$ equivalent and peso equivalent at both historical or booking rate and at the applicable exchange rate at report date. 

(ii)    Short-Term Investments (Marketable Securities)

This account should include only those securities which are readily marketable (i.e. such items which represent temporary investments of funds available for current operations and are intended to meet working capital requirements).  This account usually includes current marketable equity securities (e.g. common, preferred and other capital stock for which there is an active trading market) and other short-term cash investments such as investments in bonds, commercial papers, government obligations and certificates of deposits. Redeemable preferred shares and convertible debts, however, shall be treated as debt instruments and included in bonds, mortgages, notes and other similar debt instruments.

The purpose served by the investments is the controlling factor for its proper financial statements presentation.  Investments in securities that are marketable are not normally classified among current assets if these are acquired for purposes of control, affiliation or for some continuing business advantage.  Securities which are readily marketable may be held for several years and still be properly classified as short-term investments if management intends to sell them for working capital purposes whenever the need arises.

Marketable equity securities shall be carried at the lower of its aggregate cost or market value, determined at balance sheet date.  The amount by which aggregate cost of the portfolio exceeds market value shall be accounted for as the valuation allowance.

Other short-term investments, on the other hand, should be reported at cost adjusted for any loss on price decline of the investments.  The allowance for decline in value should be disclosed.

(iii)   Other  Receivables

This is a major account comprised of the following subsidiary accounts:

(A) Insurance Claims Receivables

This refers to company claims from the insurer for the unpaid balance of installments arising from the demise or disability of an insured planholder. (Insurance claim arising from the loss or damage to company properties or equipment are carried under “Other Insurance Claims” accounts, a subsidiary to “Other Receivables.”)

(B) Accounts Receivable - Rendered Service

This refers to receivables from planholders representing the unpaid balance of the gross price of an assigned plan already serviced.

(C) Receivables from Trust Fund

This account represents advances by the company for plan benefits paid to planholders that are chargeable to the trust fund.  This amount must be deducted from the trust fund.

(D) Advances to DOSRI

This represents cash advances extended by the company to its Directors, Officers, Stockholders and Related Interests such as employees, agencies and agents.

(E) If significant in amount, other receivables should be segregated by type, otherwise, they may be grouped in one figure captioned as Accounts Receivable - Others, or another equivalent title.

(iv)    Inventories

When applicable, inventories which consist of caskets, urns and memorial lots are carried at cost.

(v)    Other Current Assets

This represents other items not readily and properly classified in any one of the preceding asset captions or items not sufficiently material to warrant a separate caption.  If it is in excess of 5% of total current assets, it shall be stated separately.

b.   Trust Fund

Trust Fund refers to the net asset value in a trust set up in a duly licensed trustee for providing for the cost of the benefits or services to be rendered. The Pre-Need Company deposits the prescribed portion of the amount paid by the Planholder.  At all times, the net asset value in the trust fund should not be less than the Actuarial Reserve Liabilities  (ARL) as determined by an actuary accredited by Commission.

The Trust Fund shall be invested only in assets defined in these Rules.   Assets in the Trust Fund shall be valued based on the Rules of the Commission and the provisions of SFAS No. 10 “Summary of Generally Accepted Accounting Principles on Investments,” and Exposure Draft (ED) No. 30.

The compositions of the Trust Fund and its movements during the periods presented should be disclosed in the Notes to Financial Statements, including relevant investment policies adopted by the trust company, bank or investment house administering the fund.

No part of the income from Trust Fund can be used to pay dividends to stockholders.

Where there is an ambiguity between the amount of Trust Fund equity reported by the trustee as against amount shown in the Balance sheet, a reconciliation of the conflicting figures detailing the cause or causes thereof, shall be shown in the Notes to Financial Statements.

c.   Installment Contracts Receivables (ICR)

This represents outstanding account balances arising from sales of pre-need plans on an installment basis.  Installment contracts receivables include the outstanding unpaid installments on the Contract Price of In-Force Plans, including the outstanding unpaid installments of Lapsed but Reinstatable Plans or Plans in default for not more than two years.  Plans Lapsed for more than two (2) years from lapse of grace period may be cancelled by the Company subject to prior notice to the Planholder. Cancelled plans are taken off the books and the outstanding balances of Cancelled Plans and of Surrendered Plans are deducted from the installment contracts receivables account.  (The number and total amount of Contract Price of plans lapsed for a period of two years or less, and the number and total amount of Contract Price of Lapsed Plans reinstated during the year should be disclosed in the Notes to Financial Statements.)

d.   Other Investments

Investments that are not readily marketable and are not intended to meet working capital requirements are classified under this account.

Investments in securities of affiliates and related parties should be shown separately from other long-term investments in stocks.  Investments in common stock of subsidiaries and affiliated companies should be accounted for based on SFAs No. 10 and ED No. 30.

e.   Property and Equipment

This account shall include all tangible assets that are used in the conduct of the business and are not intended for sale in the ordinary course of business and with estimated useful lives exceeding one year.

Property and Equipment are generally carried at cost less allowance for depreciation.  In case of revaluation, SFA No. 12 should be applied.

Leasehold improvements are included under this caption if material in amount and if the terms of the lease extend over a long period of time; otherwise, the amount may be shown among deferred charges or other assets.  They should be amortized over the remaining term of the lease (including renewal periods if it is probable that a renewal option will be exercised) or the life of the property whichever is shorter.

f.   Deferred Charges and Other Assets

This account is a major non-current asset grouping in the Balance Sheet which absorbs subsidiary account balances amounting to less than five per cent (5%) of Total Assets. If more than five per cent (5%), each subsidiary account shall be presented separately under this grouping.

Commissions, overrides, and bonuses paid to sales personnel after January 01 2002 may be deferred subject to the following conditions:

i.)     Deferral shall be allowed only if the modified cash or accrual method of accounting is used by the Pre-Need Company ;

In case of cash method of accounting, no deferral shall be allowed.

ii.)     In case of pre-need plans with a payment period of five (5) years or more, commissions, overrides and bonuses may be deferred but shall be amortized in accordance with the following schedule:

Balance shall be amortized equally over the remaining paying period.

iii.)    In case of plans with a payment period of less than five (5) years, commissions, overrides and bonuses paid may be deferred but shall be amortized at 50% for the first year  and the balance shall be amortized over the  remaining paying period.

Commissions, overrides and bonuses paid to sales personnel before January 01 2002 which have been deferred by the Pre-Need Company shall be amortized over the remaining paying period but in no case beyond five (5) years from January 01 2002.

Example of other asset accounts under this classification include, but is not limited to, the following:

(i)    Pre-Operating Expenses

This represents actual expenses incurred in establishing a Pre-Need Company, or in opening a branch office thereof.  The cost may include legal fees, promotional fees, incorporation fees, etc. the combined amount of which, is amortized normally over a period of five (5) years.

(ii)    Other Assets

This represents other items not readily and properly classified in any one of the preceding asset captions or items not sufficiently material to warrant a separate caption. If it is in excess of five per cent (5%) of total assets, it must be stated separately.

g.   Current Liabilities

(i)   Accounts Payable and Accrued Expenses

This is a major grouping among current liabilities in the Balance Sheet which shall include, but is not limited to, the following:

(A)  Taxes Payable

This represents value added tax, documentary stamp tax and other taxes payable by the pre-need company to the government in accordance with RA 8424.

(B)  Insurance Premium Payable

This includes liabilities for unpaid premiums on group insurance of Company’s personnel and non-life insurance premiums for Company’s property and equipment, etc.

(ii )   Other Current Liabilities

The following accounts may be stated separately if material in amount:

(A)  Dividends declared and not paid at balance sheet date

(B)  Acceptances payable

(C) Liabilities under trust receipts

(D) Portion of long-term debt due within one year 

(E) Any other current liability in excess of five per cent (5%) of total current liabilities.

h.   Actuarial Reserve Liabilities (ARL)

Actuarial Reserve Liabilities represent the accrued net liabilities of the Pre-Need Company to its Planholders, as determined and certified by an actuary accredited by the Commission in accordance with generally accepted actuarial principles and practices together with the standards and guidelines set by the Commission; or, in their absence, the actuarial standards and guidelines of the Actuarial Society of the Philippines, or, in their absence, the international actuarial principles and standards. In the determination of the  actuarial reserve of any Plan, the Actuary should take into account the deferred charges. The actuarial reserve should not be less than the corresponding Termination or Surrender Value of the Plan and shall be equal to the amount shown in the Actuarial Valuation Report as required under Rule 23.2.3.

i.   Benefits Payable

This account includes amounts payable to Planholders and beneficiaries, in the course of settlement, and incurred but not reported claims on the Pre-Need contract such as due but unpaid matured benefits, surrender benefits and annuity payments.

j.   Planholder’s Deposit

(i) Planholder’s Deposit - Insurance Premium

Amount collected from the Planholder for the payment of Planholder’s insurance premiums to the insurer.

(ii) Planholder’s Deposit - Others

This represents amounts received from the Planholder for any of the following:

(A) Payment with application for a new plan not yet issued,

(B) Excess fractional payments of a regular installment, and

(C) Payment received with application for the reinstatement of Lapsed Plan, within two years from date of lapse, with pending approval.

k. Estimated Benefit Provision in ICR

This account represents provision for benefits and other related expenses in the outstanding Installment Contracts Receivable (ICR) of all Plans sold on installment basis, as prescribed by the actuary in the actuarial pricing study approved by Commission.  This account plus Unrealized Gross Income (UGI) in ICR shall be at all times equal to ICR.

l. Unrealized Gross Income (UGI) in ICR

This account represents the gross income provision, which is the difference between ICR and Estimated Benefit Provision.  Therefore, this account plus the Estimated Benefit Provision in ICR shall be at all times equal to ICR.

m. Counselors’ Bond Reserve

This account represents the aggregate amount of deductions from salesmen and agents’ commissions, bonuses, and other cash incentives to accumulate a reserve.  Upon separation of a salesman or agent from the company, his accountability will be charged to this accumulated bond reserves.

n. Other Liabilities

This represents other items not properly classified in any one of the preceding liability captions or items not sufficiently material to warrant a separate caption.  If it is in excess of five per cent (5%) of total liabilities, it shall be stated separately.

o. Stockholder’s Equity

This is a major section of the Balance Sheet, which consists of, but is not limited to, the following prime accounts:

(i) Authorized Capital Stock

(ii) Subscribed Capital Stock

(iii) Paid-up Capital Stock

(iv) Additional Paid-in Capital

(v)  Retained Earnings

(A)  Unappropriated

(B)  Appropriated – (shall be specified as to purpose)

Retained earnings cannot be declared as dividends without prior approval from the Commission.

2.   Statement of Income and Retained Earnings

a.    Income

(i)    Realized Gross Income

This account represents estimated gross income from collections of Plan contracts.  If ICR has been set up, the amount of realized gross income is determined by applying the estimated gross income rate used in setting up the UGI, to the actual collections.

This account is presented in the income statement as the major source of revenue of pre-need companies.

(ii) Other Operating Income

Under this grouping, the following subsidiary accounts shall be separately presented:

(A)  Handling  Fee

This represents handling charges associated with installment payments other than annual basis or spot-cash sales.

(B) New Issue Fee

This is normally a one-time charge to new Planholders to cover underwriting and processing service of the application, which can be a fixed amount or a percentage of the Contract Price.

(C) Amendment Fee

This represents a fixed amount or percentage of the Contract Price charged to Planholders who apply for amendment of their in-force plans to cover processing cost and services. This shall also include reconstruction/ re-  replacement fee for lost contracts.

(D) Reinstatement Fee

This represents a fixed charge or a percentage of the Contract Price, charged to Planholders applying for reinstatement of Lapsed Plans to cover processing cost and services.

(E)   Surcharge on Lapsed Plan

This  represents additional charge to Planholders on past-due installment payments of Lapsed Plans, and is different and separate from reinstatement fee.

(iii) Other Income

Under this grouping, the following subsidiary accounts are separately presented:

(A) Trust Fund Income

This account represents all income generated by the Trust Fund.

(B) Commission Income

This pertains to commission/referral fees received by the Pre-Need Company.

(C) Investment/Interest Income

This account refers to the amount of interest from securities of affiliates and unconsolidated subsidiaries, marketable securities and other securities held by the Company other than trust fund income.

(D) Realized Capital Gains

This represents gain or loss on disposal of securities.  Gains are net of losses and losses are net of gains.  Disclose the method followed in determining cost of securities sold.

(E) Miscellaneous Income

This refers to any material amount of miscellaneous income net of  deductions.

b.   Operating Expenses

(i) Plan Benefits

This pertains to benefits to planholders and/or their beneficiary/ies, paid and accrued, such as, maturity, termination benefit, etc.; except benefits paid from insurance coverages.

(ii) Increase (Decrease) in Actuarial Reserve Liabilities

This account is equal to the actuarial reserve as determined by an actuary accredited by the Commission as at the end of the current year minus the sum of the reserve as of end of previous year and any additional actuarial reserve liabilities credited during the year from installments of Contract Price collected less realized gross income, and any increase in the reserve on account of change in valuation basis, if any such change occurred during the year.

(iii) Direct/Acquisition Costs

This is a major grouping of costs and expenses accounts immediately related to sales of Pre-Need Plans, and of acquiring the same.  The following subsidiary accounts shall be presented separately under this grouping.

(A) Commissions, Bonuses, and Incentives

This represents compensation paid to sales personnel for the production of new business, and for servicing existing business pursuant to a formal “Commission Agreement.”  This compensation shall not exceed the limit set by the Commission.

(B) Collection Fees and Bonuses

This covers incentives granted for collection of non-commissionable installment accounts by authorized agents.  This account may be presented separately from the account “Commissions, Bonuses, and Incentives”, or as part thereof, depending upon the materiality of the amount.  Collection fees and bonuses shall not exceed the limit set by the Commission.

(C) Taxes

This pertains to the taxes paid by the Pre-Need Company except income tax.

(D) Prizes and Awards

This account includes cost of prizes, awards and incidental expenses incurred in giving out prizes and awards, and other benefits granted to sales personnel for outstanding achievement in selling Pre-Need Plans.

(E) Securities and Exchange Commission Registration Fee

This pertains to the registration/filing fee paid to the Commission.

(F) General and Administrative Expenses

Expenses not included in the foregoing are classified as “General and Administrative” or “Management and Operating Expenses” detailed on the face of the Statement of Income and Retained Earning, or in a separate listing schedule, or in the related “Notes to Financial Statement.” 

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