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AGA GAFRB Exam - Topic 1 Question 6 Discussion

Actual exam question for AGA's GAFRB exam
Question #: 6
Topic #: 1
[All GAFRB Questions]

Using the cost recovery method of recognizing revenue, premiums are recognized as revenue

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Suggested Answer: B

by Dominga at Jul 09, 2025, 01:28 AM

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Kanisha
2 months ago
This aligns perfectly with the matching principle in accounting.
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Thaddeus
2 months ago
Wait, is it really only when costs are incurred? Sounds odd.
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Kerry
3 months ago
Totally agree, it makes sense to match revenue with costs!
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Keshia
3 months ago
So, does that mean no profit until claims are settled?
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Cordie
3 months ago
Premiums are recognized as revenue over the policy duration.
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Stacey
3 months ago
I practiced a similar question, and it was about recognizing revenue when the policy takes effect, but that doesn’t sound right for this method.
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Lauryn
4 months ago
I’m not entirely sure, but I feel like the answer has to do with matching revenue to expenses over time. B seems to fit that.
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Terrilyn
4 months ago
I remember something about recognizing premiums when received, but that seems more like cash basis accounting, right?
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Catarina
4 months ago
I think the cost recovery method means we recognize revenue as we incur costs, so I’m leaning towards B.
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Melynda
4 months ago
Nice, this is a good application of the cost recovery principle. I'm feeling confident about this one - the wording of the answers makes it pretty clear that B is the correct response.
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Jeannine
4 months ago
Okay, I think I've got it now. The key is that under the cost recovery method, revenue is recognized over the policy term, in proportion to the related costs like claims. So B is the right choice.
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Mitzie
4 months ago
Hmm, I'm a bit confused. I thought the cost recovery method meant revenue was only recognized once the full premium amount could be reasonably estimated. Let me re-read the question carefully.
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Luisa
5 months ago
This seems straightforward - the cost recovery method means revenue is recognized as costs are incurred, so B is the correct answer.
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Wade
7 months ago
Ah, the age-old dilemma of revenue recognition. B is the clear winner here - can't be recognizing profit before the work is done.
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Bette
7 months ago
That could lead to recognizing profit before related obligations are met, which goes against the principles of the cost recovery method.
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Margart
7 months ago
Haha, I can just imagine someone trying to claim all the revenue upfront. Nice try, but B is the way to go!
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Yan
5 months ago
Agreed, following the cost recovery method ensures no profit is recognized before obligations are met.
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Diane
5 months ago
Definitely, it's important to recognize revenue as claim costs are incurred to align with expenses.
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Barbra
6 months ago
I know right, trying to claim all the revenue upfront would be a risky move.
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Mary
7 months ago
Definitely B. Recognizing premiums as revenue when they're received seems too simplistic for insurance accounting.
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Helene
5 months ago
That's true, it's important to match revenue with the costs incurred to fulfill obligations.
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Merissa
6 months ago
It ensures that revenue aligns with expenses and no profit is recognized prematurely.
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Alisha
7 months ago
I agree, recognizing revenue throughout the duration of the policy makes more sense.
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Elouise
7 months ago
I'm not sure about this. Wouldn't it be better to recognize revenue when the premium is received?
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Mirta
7 months ago
I agree with you, Bette. It makes sense to recognize revenue as costs are recovered.
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Bette
8 months ago
I think the answer is B, throughout the duration of the policy when claim costs are incurred.
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Elbert
8 months ago
Hmm, I was leaning towards option A, but B makes more sense since revenue should align with expenses under the cost recovery method.
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Leoma
7 months ago
Yes, option B ensures that revenue is recognized throughout the duration of the policy in proportion to related costs.
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Leatha
8 months ago
It's important to recognize revenue as claim costs are incurred to ensure no profit is recognized before obligations are met.
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Reiko
8 months ago
Option A may seem logical, but option B is the correct choice to align revenue with expenses.
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