Net Income formula
It seems like we have 2 formula to calculate the Net Income
- NI. after-Tax = ( NEP - net.CAE - TotAcq - GenExps ) + net.InvInc - Total Tax
- NI after-Tax = (1 – tax rate) x [ (U/W Income) + (Investment Income) + (Other Income) ]
How do we know which formula to use ?
I was doing Fall 2018 question 24, using formula (1) - assuming all unknown to be 0;
but when i checked the answer, the examiner report uses formula from (2).
Thank you
Comments
Hi,
For situations like this you have to try one of the methods and if there isn't enough information to fully solve the question, you then try the second method to see if it gets you closer.
Going back to this question, you assumed acquisition and general expenses are 0. This would already give you a hint that the second method is probably the right one given that it's not logical to have 0 general expenses. It's always prudent to explore other possibilities to arrive at a final answer before assuming any missing information to be 0 as the the CAS does love to pull out trickery on their exams.
Are these 2 formulas still valid for Spring 2023? Will they be providing that information or will it be under a different name or would they put up a PC1 and I need to calculate the Net income the way that is detailed in the CCIR instructions
I would guess probably the way that it is detailed in the CCIR instructions