Comments

  1. avatar says

    Dear Sir,

    I hope you don’t mind me asking a question; just slightly confused on question 2:-

    ‘Moira prepares its financial statements for the year to 30 April each year. The company pays rent for its
    premises quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was
    $201,600 per year until 30 June 2008. It was increased from that date to $230,400 per year.
    What rent expense and end of year prepayment should be included in the financial statements for the
    year ended 30 April 2009?

    Expense Prepayment
    A $223,200 $19,200
    B $223,200 $38,400
    C $225,600 $9,200
    D $225,600 $38,400′

    Having looked at the answer ‘(201,600 × 2/12) + (230,400 × 10/12) = 225,600; 230,400 × 2/12 = 38,400′, I was just wondering why it’s worked out at 2/12?

    Thank you very much.

    Ps Your lectures are extremely helpful and informative, they make self study a lot less daunting, and for that I would like to thank you very much!

    • Profile photo of Rustam says

      hey, Lauren!
      expense calc: 201,600x(2 of May+June) + 230,400x(10 of July+Aug+Sept+Oct+Nov+Dec+Jan+Feb+March+April ( <<we paying here on April 1 for 3 months, where 2 of them p/payment)=225,600
      P/payment calc: Co. pays quarterly, so the last payment was on April 1. From April 1 to our year end 1 month so P/payment is 2 month of 230,400 which is 38, 400.
      i guess our teacher agrees:)

  2. Profile photo of Rustam says

    Dear Sir,
    some quires seem to appear.
    1) when we pay in advance, the payment (even though it is Prepayment) is recorded as insurance expense for the year because…we already incurred the cost, right? the amount exceeding the expense for the accounting year is recognised then as a prepayment?
    2) when we paying the bills in advance in the June for annual insurance for example and if our acc.period is standard 01.01-31.12 – so, we recognise the difference between the year for which we paid (expense) and our year ended as (=) prepayment?
    So the periodical difference is actually difference between our acc.periods and books and the tax, insurance and rent collecting bodies’?
    3) if we told that somebody paid in June (prepayment) we should recognise the starting period as the next one and if paid as accruals then starting from the previous?
    thank you,

    • Profile photo of John Moffat says

      1) We record the cash we pay – we have to. If we have paid some of next years expense then the amount prepaid is not an expense of this year and is show as an asset at the end of this year.
      2) There is no such thing as a standard accounting period – the business’s year can end whenever we want. If the amount paid during our year is different than the actual amount used in our year then we have either an accrual (because we have paid less) or a prepayment (because we have paid more).
      I don’t know what you mean by difference between our books and tax, insurance bodies. They are not our problem anyway.
      3) I am sorry but I do not understand what you are asking :-(

      Everything needed is covered in this lecture.

      • Profile photo of Rustam says

        “If the amount paid during our year is different than the actual amount used in our year then we have either an accrual (because we have paid less) or a prepayment (because we have paid more).” – That’s all I needed. Ingenious!!!

      • Profile photo of Rustam says

        3) I mean if we told that somebody paid in June (in advance for a quarter) we should recognise the starting period as the next month (July August September) and if paid as accruals in June (for previous quarter) then we paying for march april may?

      • Profile photo of John Moffat says

        3. It really depends on the wording and you have to read very carefully. If they pay in advance at the beginning of June, then you would assume they were paying for June, July, August (unless, obviously, the question said different).

        If they paid in arrears in June, then you would assume they were paying for March, April, and May (unless, again, the question said different).

  3. avatar says

    Dear Sir,

    regarding to example 1 in this chapter, (c) in Insurance T account, how do we get 2400? Instead should it be $2800? since on year 2000 they paid $2800 and an extra prepayment for the next 6 months of $1000?

    • Profile photo of John Moffat says

      There is no 2,400 in the T account for example 1 !! You have not been listening carefully.
      After we have finished example 1, we then go on to example 3 in the Lecture Notes which is the same business but in the following year i.e. 2001. In 2001 in example 3, the payment is 2,400.

      I assume that you have watched the earlier lectures (because they follow on from each other) and that also you have the free Lecture Notes in front of you. There is no point in watching the lectures without having the lecture notes in front of you because the examples that I am explaining are from the Lecture Notes.

  4. avatar says

    I was just wandering! what if we post the the whole payment to the prepayment account instead of the insurance expense account and then month by month start crediting the prepayment account and debiting our insurance expense account? The example you have given could be suitable maybe for an exam, but in the real life work environment, we have to declare our financial statements every month. your thoughts please??

    • Profile photo of John Moffat says

      In real life there are several ways that you can do it. What you suggest is fine if you have to prepare statements every month (although for F3, statements only have to be prepared once a year by law.) Preparing them monthly is more management accounting.

  5. avatar says

    Hi Sir , I would like to ask the following question , Example one -05 Jan 2000 – $800 for 6 months to 30 June 2000 , Because payment was made on 5th of Jan , did we overpay since for 5 days in Jan we remained Uninsured?

  6. avatar says

    Kindly help with this question

    In October 2013, insurance of $2,400 was paid for the year to 30/11/2014. In October 2014,
    insurance of $3,000 was paid for the year to 30/11/2015.
    What expense for insurance should be shown in the income statement for the year ended
    31/12/2014, and what accrual or prepayment would be shown in the statements of
    financial position of 31/12/2013 and 31/12/2014?

    A- Expense $2,500; accrual 31/12/2013 = $2,000; accrual 31/12/2014 = $2,500
    B- Expense $2,450; prepayment 31/12/2013 = $2,400; prepayment 31/12/2014 = $2,750
    C- Expense $2,500; prepayment 31/12/2013 = $2,000; prepayment 31/12/2014 = $2,500
    D- Expense $2,450; accrual 31/12/2013 = $2,400; accrual 31/12/2014 = $2,750

    • Profile photo of John Moffat says

      We need the expense for Jan to Dec 2014.
      From Jan to Nov (11 months) it was at the rate of $2400 per year
      For Dec, it was at the rate of $3000.
      So….take 11 months at 2400/12 per month, and 1 month at 3000/12 per month.

      At the end of December in both years you have prepaid (because already paid up to end November the following year). So both years have a prepayment.

      You do not need to calculate the amount (although it is 11 months) because there is only one answer that is then possible.

    • Profile photo of John Moffat says

      (Please ask this sort of question in the F3 Ask ACCA Tutor Forum – it is not possible for me to always read all the comments and so I might miss questions posted here.)

      Our year is 1 July 2007 to 30 June 2008.

      Up to 31 March 2008, insurance was at the rate of 25920 a year.
      From 1 April 2008, it was 28,800 per year.

      So, from 1 July 2007 up to 31 March 2008, we have 9 months and the cost is therefore 9/12 x 25920 = 19440
      From 1 April 2008 to 30 June 2008, we have 3 months and the cost is therefore 3/12 x 28800 = 7200.
      This gives a total cost for our year of 19440 + 7200 = 26640.

      It should be clear from the dates that we are paying in advance and will therefore have a prepayment at 30 June, so the answer has to be A. (There is actually no need to calculate here because there is no other possibility. However we have prepaid 9 months at the rate of 28800 per year).

    • Profile photo of John Moffat says

      The website is working fine – the problem must be at your end.
      I assume that you have looked at the technical support page?
      (and I assume that you are not trying to download the lecture – lectures are deliberately not downloadable)

      • avatar says

        Hi John,

        I am also experiencing the same issue. The problem is that the videos were working just fine until yesterday. But I am getting this message now. I have not changed any settings in browser or elsewhere. This is the reason I am a little confused why the videos are not working now.

        Will really appreciate your help on this. Thanks.

      • Profile photo of John Moffat says

        You mean that you are getting ‘error loading skin’ etc messages? (Because the comment in March was due to the person trying to download the file!)

        The lectures are all working fine – the problem must be due to the internet connection at your end, or to your browser having automatically updated (and changed settings at the same time)

  7. avatar says

    when they say its $1200 for 12 months does it actually mean 600 for 6 moths and remaining 6 months 600 (1200/2) or we have to assume it in this manner because in real life for example it can be 700 for 6 months and 500 for the remaining 6 months unless the examiner mentions it like this you cannot find the correct amount for the correct period

    • Profile photo of John Moffat says

      Unless you are told differently, you have no choice except to assume that the cost occurs evenly over the period of the particular invoice (so in your example, 100 per month).
      In the exam there is nothing else we can do and so we always assume that to be the case (unless again you are specifically told differently).

  8. avatar says

    hello guys this is my first time on opentuition heard about it from a friend and i hope i will be able to get some answers to my problems thxs, first of all i really have problems with ACCRUALS AND PREPAYMENT,i just hate it with passion that makes me hard headed

  9. avatar says

    I could get this question right on the test, could someone please explain what a Debit/Credit balance on Suspense account would mean and what could be the possible reasons for such to occur thru an example?

      • Profile photo of John Moffat says

        A balance on the suspense account means that somewhere the double entry is not correct and therefore the trial balance will not balance.

        For example, if we make cash sales of $1,000, then the correct entry should have been to debit cash 1000 and credit sales 1000.
        But suppose by mistake, the entry had been to debit cash 1000 and credit sales with 100.
        Obviously this is wrong, and the trial balance would not balance. The total of the debit balances would be 900 more than the total of the credit balances.

        To make the trial balance balance we need an extra credit of 900. So we would put a credit balance on the suspense account of 900. Then we know that we need to find an error of 900.

        When we find the mistake, then to put it right we credit sales with 900 (which means that the total on sales is now correct). The double entry is to debit suspense with 900. So the balance on suspense is now zero – that means that the double entry now works and there are no more double entry errors to find.

      • avatar says

        Ok understood. Therefore, if there is a debit balance on the Suspense A/C for example, then wud it mean that the credit side of the trial balance is higher and vice-versa and that we need to find the error which is leading to a heavier credit?

    • Profile photo of John Moffat says

      The LCCI does not publish the syllabuses and so it is not really possible to say which parts of ACCA you should study.
      ACCA Paper F3 is equivalent to LCCI 3 + LCCI 4.
      Best really is to work through all of F3 – some parts you should find just revision and therefore easy. Other parts will be new to you, but will be useful.

Leave a Reply