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  1. 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

    • Avatar of johnmoffat 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.

    • Avatar of johnmoffat 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).

    • Avatar of johnmoffat 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)

  2. 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

    • Avatar of johnmoffat 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).

  3. 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

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