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February 28, 2016 at 3:28 am
On 1 January 2006 the following balances among others were recorded.
1.Lighting and heating
During the year ended 31st Dec 2006 the information related to these accounts is recorded as follows.
1.Fire insurance,$960 covering the year ended 31 April 2007 was paid.
How can I calculate prepayment without knowing the exact date of the payment?
How do I reflect closing inventory in an expense account?
John Moffat says
February 28, 2016 at 9:41 am
You should ask questions like this in the Ask the Tutor Forum, and not as a comment on a lecture.
1. The exact date of payment is irrelevant. All that matters is that it was paid during the year ended 31 December (which it obviously was since it had been recorded), and therefore the period after 31 December is prepaid.
2. Inventory of an expense (such as stationery) is recorded in exactly the same way as inventory of goods. This is dealt with in the lectures on inventory.
mohammad ajmal says
January 31, 2016 at 3:29 pm
i have done the insurance account that would be detailed below.would it be a mistake.
on the debit side bank $2800 and on the credit side to income statement $1800 and a balance carried forward of $1000.for the next year the balance c/d becomes the bal b/d of $1000 on the debit side and bank $2400 on the credit side to income statement $2200 and a bal c/d of $1200.the it becomes a bal b/d for the next year.
January 31, 2016 at 5:45 pm
No – that would be fine.
However in the exam you can not be asked to prepare t-accounts, and this question could only be asked in Section A as an MCQ. So all the matters is the final answer – nobody will look at your workings.
January 27, 2016 at 8:45 am
I was wondering what other items of expense could have prepayments?
January 27, 2016 at 9:43 am
There could be prepayments for any items of expense. However, it is only really likely to occur on expenses that you have to pay in advance – insurance being the most common, and also rent (although sometimes rent is paid in arrears).
Any exam questions will make it very clear whether they are being paid in advance or arrears.
Quốc Anh says
December 7, 2015 at 4:05 pm
:). My english listening skill is still bad….although I can understand all things you’ve done in excercise, but I would like to get through and research that deeply…because F3 is the foundation for doing the next course so…do you mind if you can add and insert the subtitle by English for each lecture video?:) I appreciate that.
December 7, 2015 at 4:18 pm
It would be nice, and maybe one day we will be able to, but at the moment we do not have the resources (given that we do not charge for anything on this website).
October 28, 2015 at 11:32 am
i did not understand what you did in question number three. i checked the answer and could not fathom. why are we subtracting opening and closing balance if you could please kindly explain thnk
October 28, 2015 at 12:22 pm
You you mean example 3 or test 3?
October 22, 2015 at 9:17 am
I just have a doubt as to why is the insurance account balanced twice? Isn’t it enough to find the final balance after recording the prepayment?
I hope my question is clear
October 22, 2015 at 10:00 am
However the accounts will usually be balanced as soon as the bookkeeper has finished. Then a trial balance will be produced listing the balances. The the adjustments (including accruals and prepayments) will be entered.
For the exam it does not matter when you take the balance 🙂
October 15, 2015 at 2:21 pm
hello sir, in example 0ne you credited pre payments in insurance account and debited insurance in the prepayment account… m confused on why you did that please help
October 15, 2015 at 3:13 pm
Because the have overpaid we credit prepayment to take out the amount of the overpayment, and debit prepayments.
(What we write against them doesn’t matter, but it is usual to write the name of the other account – you need to watch the previous lecture on double entry to understand this)
May 19, 2015 at 4:49 pm
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?
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!
May 19, 2015 at 8:54 pm
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:)
May 17, 2015 at 10:30 pm
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?
May 18, 2015 at 9:33 am
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.
May 18, 2015 at 4:00 pm
“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!!!
May 18, 2015 at 4:07 pm
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?
May 18, 2015 at 5:07 pm
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).
March 26, 2015 at 4:18 pm
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?
March 26, 2015 at 5:23 pm
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.
February 18, 2015 at 4:24 pm
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??
February 18, 2015 at 4:48 pm
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.
August 15, 2015 at 7:05 am
is it ok to debit the prepayment at the time of the payment, credit prepayment at the end of the year and debit the insurance expense at the end of the year?
August 15, 2015 at 9:36 am
By all means – how you do the entries does not matter provided you end up with the correct expense and the correct prepayment. However why do you want to do it differently? 🙂
Do appreciate that you will not be asked to write up the t-account anyway in the exam – there is very little testing of double entry. What is needed is to be able to calculate the expense and/or the prepayment quickly and to do it in a t-account takes far too long. The main problem in the exam is speed.
February 16, 2015 at 7:42 pm
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?
February 16, 2015 at 8:14 pm
No – since the payment was for 6 months, we were insured for the period 1 January until 30 June.
February 2, 2015 at 11:01 pm
i cant see any video tutorials on site i even checked with support :/ please help asap 🙂
February 3, 2015 at 7:38 am
The lectures are all working fine and so the problem must be at your end.
Try using a different browser. If that does not work then you need to check with your internet provider.
July 6, 2015 at 1:07 pm
There is nothing wrong with my internet. Also I have tried opening the video tutorials with Chrome, Safari and Firefox, but I still cannot open the video. Please help 🙁
July 6, 2015 at 1:39 pm
The video is working fine.
Please go to the support page – the link is above.
July 6, 2015 at 2:17 pm
Khut – 99% chance that your Internet Provider or Office Administrator is blocking access to vimeo – which host this lecture – contact them ti resolve it, OR try TOR Browser
July 6, 2015 at 2:34 pm
Thanks for replying! I will try to contact my Internet provider then, but it’ll be better if I can access the videos through YouTube. Unfortunately, there’s only few F3 videos. I sincerely hope that you could upload all the tutorials to YouTube. Thanks in advance 🙂
January 26, 2015 at 8:18 pm
Very useful lectures and available explanation.Thanks
June 22, 2014 at 9:13 pm
ok thanks, i hope to hear your reply
May 31, 2014 at 3:07 pm
i cant open any video pls assist
May 31, 2014 at 4:02 pm
Please check support page
April 12, 2014 at 2:34 pm
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
April 12, 2014 at 2:42 pm
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.
April 12, 2014 at 4:53 pm
Thanks alot 🙂
October 26, 2015 at 4:43 pm
hello sir i do not understand why you did 11 months at 2400/12 ….. please if you could tell me the answer….many thanks
October 26, 2015 at 4:51 pm
But I have written the reason in my original reply!
The payment was for the year to 30/11/2014.
The company year is 1/1/2014 to 31/12/2014.
So from 1/1/2014 to 30/11/2014 is 11 months!
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