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June 30, 2015 at 8:12 pm
I need help, I have a problem with question 1 in the Test. Why the answer doesn’t include cash a/c in current assets ?
Here are my calculations to explain what I meant (numbers in thousands):
Loan receivable 28,8 (DB) / Cash 28,8 (CR)
Interest receivable (2% x 28,8) (DB) / Interest income (2% x 28,8) (CR)
Loan is paid on 1.01.2009, so I didn’t include it in the Statement of Financial Position.
Insurance 21,6 (DB) / Cash 21,6 (CR)
Prepayment 14,4 (DB) / Insurance 14,4 (CR)
Accrued receivable 9,6 (DB) / Rent income 9,6 (CR)
Cash is paid on 1.01.2009, so I didn’t include it in Cash a/c.
The question ask for Current assets/liabilities, so I exclude all expenses/income:
Cash 28,8 + 21,6 = 50,4 (CR)
Prepayment 14,4 (DB)
Loan and interest 28,8 + (2% x 28,8) = 29,376 (DB) / I took loan as current assets (to 1 year)
Accrued receivable 9,6 (DB)
Current assets = – 50,4 + 14,4 + 29,376 + 9,6 = 2,976
If we intend to receive money from Loan, Interest, Accruals, do we record them in Accounts Receivable position ? (as Assets)
John Moffat says
June 30, 2015 at 10:00 pm
You are correct except for the loan and interest. The loan is a current asset of 28,800. In addition there is a current asset of the interest owing, which is 2% x 28.800 = 576.
(I hope you realise that the answers to all of the test questions are at the end of the lecture notes.)
July 1, 2015 at 9:10 am
Actually.., I included Loan and Interest. But I wonder why I can’t include cash which company spent on Loan and Insurance ?
The answer at the end of the lecture notes is: 28,800 + (28,800 x 2%) + (21,600 x 8/12) + 9,600 = 53,376
My calculation with included Cash account: 53,376 – (28,800 + 21,600) = 2,976
July 1, 2015 at 9:35 am
You cannot include cash because you do not know what the cash balance is. You are only required to show the balances for insurance etc..
July 1, 2015 at 9:53 am
It makes sense now. Thank you
June 19, 2015 at 2:24 pm
Ahh! Test 1 would have been so simple if I had payed attention to the details.
I didn’t make the distinction between dec 31st and jan 1st hence me assuming everything had been paid. This caused me to make all the t accounts and write down the financial statements. Of course I ended up with the wrong answer after all this work.
I assume the examiner will have plenty of these little tricks to try and fool us in the exam.
May 14, 2015 at 9:00 pm
can you explain this question plz
tom owns two properties which it rents to tenants in the year ended 31 dec 2006 it received 280000 in respect of property 1 and 160000 in respect of property 2
balances on the rental accounts were as follows
31dec06 31 dec 05
property 1 13400 dr 12300cr
property 2 6700 cr 5400 db
May 15, 2015 at 9:15 am
You must ask questions like this in the Ask the Tutor Forum – not as a comment on a lecture.
May 9, 2015 at 1:52 pm
Question 3 i saw your answer, but i dont understand when you say to imeh
“At the end of the year we need to end up with a debit balance of 44,160 and a credit balance of 74,880 (for the same reasons as the balances at the start of the year, and so these balances need carrying forward”
On the answer 44,160 is credited to the ledger.
Have i mixed the format of a ledger and t account? cany you please explain where it is debited, and why its on the right hand side of the ledger.
Thanking you in anticipation.
May 9, 2015 at 3:55 pm
Remember that we always carry down balances from the opposite side.
So to end up with a debit balance we need to carry it forward from the credit side (it is the missing figure on the credit side) and vice versa if we want to end up with a credit balance.
May 2, 2015 at 9:48 am
Could you please explain me briefly how to solve this question?
At 1 September, the motor expense account showed 4 months insurance prepaid of $80 and petrol accrued of $95. During September, the outstanding petrol bill is paid, plus further bills of $245. at 30 September there is a further outstanding bill of $120.
What amount is to be shown in income statement for motor expenses in September?
May 2, 2015 at 10:30 am
In future you must ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture.
The cash paid during September was 95+245. However 95 was owing from last month and so only 245 relates to this month.
At the start of September they had prepaid 80 insurance. At the end of September they will only have prepaid 3 months – 1 month insurance was ‘used’ in September and for 1 month it is 80/4 = 20.
So the total expense is 245 + 20 = 265
May 2, 2015 at 2:05 pm
I shall keep that in mind. Thanks
May 9, 2015 at 3:35 pm
Hey John, am confused
Why do we ignore the 120 outstanding at the end of September. I keep looking at this and getting 385 as the months motor expenses
May 9, 2015 at 3:53 pm
We don’t ignore it!
Hemraj asked the same question in the Ask the Tutor Forum and I answered him there correctly (but forgot to come back here and add the 120).
(Last time I saw you Biggles you were taking P2. It’s great that you are still watching F3 lectures )
May 9, 2015 at 4:50 pm
Just doing some basic revision before I get in to P2
I don’t think I’ll ever get tired of watching the lecturers on this site
March 26, 2015 at 4:44 pm
Can anyone help me? I can’t understand the entire chapter 4 at all.
March 26, 2015 at 5:28 pm
If you have watched the previous lectures, then to say you understand none of chapter 4 is a rather ridiculous comment – your other post elsewhere makes it clear that you do understand something.
Have you watched the earlier lectures?
Have you printed out the free Lecture Notes? There is no point in watching the lectures without the lecture notes in front of you because the examples that I am working through are from the Lecture Notes.
It is obviously impossible (and unnecessary) to simply type out here the entire lecture. For any specific parts that you do not understand then ask in the Paper F3 Ask the Tutor Forum and I will try to help you.
March 28, 2015 at 5:39 am
I understand the earlier part, but I find it abit confusing. I have my lecture notes with me as well, I will go thru again the lecture again. Thanks for the advise,sir
March 16, 2015 at 11:38 am
Hi. Can you provide a little more information on the test question 3? Why do the opening balances and ending balances appears on difference sides?
March 16, 2015 at 11:39 am
See the answer to IMEH below – I think it answers your question.
March 16, 2015 at 11:48 am
Yes. I am being stupid again. For some strange reason I am thinking of rental expense and not income. Grr…. lack of concentration. I will get there. (Slaps self in face!)
March 16, 2015 at 12:04 pm
No problem – that is by far the most common mistake
(Be careful in the exam – when you are rushing it is even more likely that you will think that. It is always with rent questions, so whenever you see rent mentioned always stop and check whether it is rent expense or rent income.)
March 15, 2015 at 12:58 pm
I tried working the rent questions (no. 3 &6) but couldn’t seem to get the logic behind it.
Kindly help explain.
March 15, 2015 at 2:48 pm
For question 3:
At the start of the year (30.4.2007) we had tenants who owed us 50,880 (their rent was in arrears, so they had not paid and were still owing us). They owed us, so there is a debit balance.
Also, there were tenants who had paid us in advance – at the end of last year they had paid too much and so we owed them the money. Therefore a credit balance of 68,880.
During the year we had received cash of 1,154,880 – so Dr Cash and Cr rental income.
At the end of the year we need to end up with a debit balance of 44,160 and a credit balance of 74,880 (for the same reasons as the balances at the start of the year, and so these balances need carrying forward.
The missing figure is the rental income for the year.
You might find it easier without using a t-account:
The cash received was 1154880
However, part of the cash was the amount that was owed to us from last year (50,880). That is not this years income but last years and so we need to subtract it from the cash received.
Also, some people had paid us last year for this years rent (68,880). Although we did not get the cash this year, it is this years income, so we need to add it to the cash received.
At the end of this year, 44,160 still owe us rent – it is this years income but we have not received the cash, so add it to the cash received.
At the end of this year, 74,880 had paid us next years rent. We have had the cash but it is not this years income, so subtract it from the cash received.
If you add and subtract as above, then again you will come to the rental income earned this year.
It is exactly the same for question 6 except obviously with different numbers
March 15, 2015 at 2:52 pm
March 10, 2015 at 2:50 pm
Around 11 Minutes 50 Seconds, you say credit accrual for reversal and debit expense. You enter it correctly but say it incorrectly… Just thought Id give you a heads up.
March 10, 2015 at 2:54 pm
January 5, 2015 at 12:40 pm
The year end is 30 April, so the last payment will have been on 1 April 2009.
This payment will have been for April, May and June
So 2 months have been prepaid at the rate of 230,400 per year.
January 5, 2015 at 12:45 pm
January 5, 2015 at 12:28 pm
The Question is:
Morias prepares its financial statements for the year end to 30 April each year.
The company pays rent quarterly in advance on 1 Jan, 1 April, 1 July, and 1 October each year. The annual rent was 201, 600 per year until June 30 2008. it was increased to 230, 400 per year from that date.
What is the rent expense and prepayment to be included in the statement of financial position for 30 April, 2009?
A 223,200 19,200
B 223,200 38,400
C 225,600 9,200
D 225,600 38,400
ans is d but i didn’t understand how prepayment would be 38400 ???
December 23, 2014 at 5:38 am
Hi sir, i have questions about test number 3 and 6.
i thought the answer for questions 3 is
My understanding is, 68880 and 50880 were received in the end of april, 2007. therefore, they r not included in 1154880. however, 68880 is income for year ending april 2008, i added. on the other hand, 74880 and 44160 were received in the end of april, 2008. therefore, they are already included in 1154880. however, 74880 is income for the next year, so i subtracted it.
i have trouble understanding question number 6 for the same reason…
December 23, 2014 at 8:37 am
You are correct bout the rent received in advance.
However, the 50,880 is rent that we owing to us at 30 April 2007, but we not actually received until during the year ended 30 April 2008. So it is included in the 1154880 cash received but needs removing because it is not income of year ended 30 April 2008.
The 44,160 is rent owing to us at 30 April 2008, but not received until afterward (subsequently), so it is not included in the 1154880 cash received, but needs adding because it is income of the year ended 30 April 2008.
October 7, 2014 at 9:26 pm
Please could you explain test – question 1.
Part 2 I am not sure I understand why it is 8/12s. I work out anything other than half a year as it states “company paid insurance 21,600 in 2008 covering year ending 31st August 2009″.
My thinking is that we have paid for the year from 31st August 2008 – 31st August 2009. I work that out to a half. Where am I going wrong and what am I missing?
October 8, 2014 at 4:31 pm
The company year end is 31 December 2008.
The insurance is paid from 1 September 2008 to 31 August 2009.
So the amount overpaid/prepaid is the period from 1 January 2008 to 31 August 2009, which is 8 months.
October 8, 2014 at 5:15 pm
Thank you sorry I think studying too late was taking its toll on me. Thank you for your reply.
October 8, 2014 at 6:03 pm
Go to bed early tonight
November 3, 2014 at 3:47 pm
I think you made an error my tutor. It should be from 1 Jan.2009 to 30 Aug 2009.
November 3, 2014 at 4:30 pm
I mistyped, but it is still 8 months
August 30, 2014 at 6:22 pm
I haven’t understood why in the Example 4, the balancing figure on the credit side (which is shown as to be gone into Income Statement) is 5050 for the Telephone A/C – shouldn’t it be 550? I mean first the balance was Dr. 3550 and after we’ve added accruals 1500, then the balancing figure on credit goes as 5050 – is it correct?
August 30, 2014 at 7:50 pm
Yes it is correct.
The total expense for the period is 3550 plus the accrual of 1500.
It is the total expense that we want to go to the Statement of profit or loss.
June 29, 2014 at 8:45 pm
BUt at 7:04 what happens if the ACTUAL amount is lets say 1000 then what do we do? whats the dr and cr
and what happens if its actually only 800? what is the db and cr?
June 30, 2014 at 7:49 am
I do actually explain this later in the lecture.
There are no additional entries necessary.
If the accrual at the end of last year turned out to be too high, then it means that the expense last year was too high as well. However we cannot go back and change last year. So this year we carry on exactly as normal and the end result is that the expense in the Statement of profit or loss this year is lower (and effectively corrects the ‘mistake’ last year).
(In practice it is rarely a problem because by the time the accounts are actually finished we will usually have received the next invoice and so will be able to accrue exactly the correct amount.)
June 18, 2014 at 9:08 pm
I don’t understand why they debit the accruals $950. I though they are paying the telephone company, they’re supposed to credit cash. I don’t understand
June 18, 2014 at 9:51 pm
At the beginning of the year we need to remove the accrual that was created at the end of the previous year – we debit accruals to clear it, and credit telephone to show it as owing there.
When it is actually paid, we do indeed credit cash, and debit telephone. Then it is no longer owing.
June 19, 2014 at 8:40 am
ok it means it’s not paid yet?
June 19, 2014 at 8:50 am
No – an accrual is where we have used the expense but not year paid for it!
Carl Andrew says
April 22, 2014 at 10:33 pm
I’m having difficulty with this question. I have the answer but no idea how they arrive at it.. please assist.
Here is the question.
A company pays rent quarterly in arrears on 1 January, 1 April, 1 July and 1 October each year. The rent was increased from $90, 000 per year to $120, 000 per year as from 1 October 20×2.
What rent expense and accrual should be included in the company’s financial statements for the year January 20×3?.
April 23, 2014 at 12:38 pm
Interesting question indeed!!! here is the solution for it,
i.Rent Expense would be $120,000
ii.Accrued Rent would be $30,000
April 24, 2014 at 2:14 pm
Can you show me how you arrived at the answer?
April 24, 2014 at 3:13 pm
I am afraid that it is impossible for Andrew’s answer to be correct )the rent only went up to 120000 part way through the year and so the total for the year cannot possible be 120,000!!)
Our year is 1 Feb to 31 Jan.
From 1 Feb to 30 Sep (8 months) the rent is 90,000 per year, so for the 8 months it is 8/12 x 90,000.
From 1 Oct to 31 Jan (4 months) then rent is 120,000 per year, so for the 4 months it is 4/12 x 120,000.
If you do the arithmetic and then add them up, you should get the total expense for our year to be $100,000.
As at 31 Jan – the end of our year – the last payment was on 1 Jan (for the previous 3 months) and so there is one month to accrue.
One months rent at 120,000 per year is an accrual of 10,000.
April 16, 2014 at 10:34 am
With regards to Test Q1, the answer suggests that we should include the interest chargeable on the loan as an asset for the year ending 31.12.08. Isn’t it fair to say that the interest has not yet been realised, and as such, the company has not actually earned any income yet (and so should not be a current asset)?
OR, do we consider the interest as a Receivable not yet paid (entailing it’s a current asset)?
April 16, 2014 at 10:45 am
We must always account of all income earned and all expenses incurred, whether or not we have received or paid cash.
Here, we have earned the interest (because they had the loan for 12 months) and so the income must appear in the Statement of Profit or Loss.
Since they have not yet paid us the money, the amount owing will appear as a receivable in the Statement of financial position.
April 7, 2014 at 8:23 am
When we pay the accrued expense of 950, why don’t we just Dr Accruals & Cr Cash? Why we need to Dr & Cr the telephone expense a/c again, as we have already recorded the expense in the previous year.
April 7, 2014 at 9:18 am
We could, but it would make things more complicated and confusing.
Let me give you just one example of the problem it would create.
Suppose our year end is 30 November, and we pay electricity in arrears for 3 months to end Mar, to end June, to end Sept, and to end Dec.
At 30 November we would need to accrue for 2 months – oct and nov. But the first payment in the next year would be for October, nov, and dec.
doing it your way we would have to split the payment with part debited to accruals and part debited to electricity.
Since we only need to worry about accruals and prepayments once a year it is far easier to always debit the payments to the expense account, and at the end of each year to make the entries for the accruals and prepayments.
April 7, 2014 at 10:47 am
March 31, 2014 at 8:43 pm
Yes – that is correct
March 25, 2014 at 6:21 pm
Total rent received during year ended 30 April 2008: $ 1154880
Less: Rent received in advance for year ended 30 April 2009: – $ 74880
Add: Rent for year ended 30 Apr 2008 received as advance
in year ended 30 Apr 2007 + $ 68880
Less: Rent for year ended 30 Apr 2007 received in arrears
in year ended 30 Apr 2008 – $ 50880
Add: Rent for year ended 30 Apr 2008 which will be received
in year ended 30 Apr 2009 + $ 44160
Total Rental income for the year ended 30 Apr 2008 = $ 1142160
I have assumed that rent to be received in arrears ($ 44160) on 30 Apr 2008 is an income for year ended 30 Apr 2008 in SOPOL and will be a receivable in balance sheet.
Is this correct?
JAMES RUMBIDZAI says
June 30, 2014 at 10:58 am
44160 is not recognised as an income but as a current asset(Accrued Income) in the SOFP only. the income that will be recognised in the SOPOL is the 1142160 that you just calculated
June 30, 2014 at 11:26 am
The 44160 is recognised as income and aijaz has correctly included it in his calculation of the total income of 1142160.
Because it is still owing to us, it also appears as a current asset in the Statement of financial position.
Aijaz is correct.
March 25, 2014 at 5:57 pm
Chapter 4 test q3
I have used this logic :
Total rent received(01/05/07-30/04/2008) $ 1154880
Less: rent advance(01/05/08-30/04/09) – $ 74880
Add: rent advance(01/05/07-30/04/08). + $68880
Less: rent arrears(01/05/06-30/04/07) – $50880
= $ 1098000
Add: rent to be received in arrears + $ 44160
Rental income for year ended 30Apr2008 = $ 1142160
I have assumed that, rent to be received in arrears on 30Apr2008 should be considered as rental income for year ended Apr 08.
Is this method correct?
March 13, 2014 at 10:35 am
Here is a different question from the BPP Revision kit. Please how can we go about it?
The Trainee Accountant at Judd Co has forgotten to make an accrual for rent for December in the financial statements for the year ended 31st december, 2002. Rent is charged in arrears at the end of Feb, May, august, and November each year. The bill payable in Feb is expected to be 30,000. Judd Co’s draft income statement shows a profit of 25,000 and draft statement of financial position shows net assets of 275,000.
What is the profit or loss for the year and what the net asset position after the the accrual has been included in the financial statements?
March 13, 2014 at 11:12 am
The bill payable in February was for December, January and February.
Their year end was December and so you can calculate how much was owing (i.e. should have been accrued) for December.
They had forgotten to make the accrual, so they will need to do it.
Making the accrual will make the rent expense higher, which will of course make the profit and the net assets lower.
March 13, 2014 at 1:42 pm
Thanks for the explanation, the amount accrued for the the 3 months is 30000/3=10000 for each month.
So deducting the 10000 for each month from the profit and net assets will reduce them to 15,000 and 265000 respectively.
That is the right answer and I hope I got the explanation correctly.
Thank you for your help.
March 13, 2014 at 2:42 pm
You are welcome.
March 8, 2014 at 1:25 pm
Please how do I go about solving this type of questions:
A company pays rent quarterly in arrears on 1 January, 1 April, 1 July, and 1 October each year. the rent was increased from 90,000 to 120, 000 per year from 1 october 2002. What is the rent expense and accrual that should be included in the compnay’s financial statements for the year ended 31 January 2003?
Rent Expense Accrual
a. 100, 000, 20,000
b. 100, 000 10,000
c. 97,500 10,000
d. 97,500 20, 000
thanks in anticipation of your response.
March 8, 2014 at 2:19 pm
The approach is exactly the same as for question 5, and I have been through that one in my answer to your previous question (below).
The only difference (apart from obviously the numbers) is that this time the rent is payable in arrears. That does not affect how we calculate the expense for the year.
However for the accrual – the last payment will have been on 1 January and will have been for October, November, and December 2002. Our year end is 31 January and so there will be an accrual of one months rent (at the rate of 120,000 per year).
March 11, 2014 at 4:07 pm
Got it. I am clear now.
March 11, 2014 at 4:54 pm
Thats great – I am pleased that you are now OK
March 6, 2014 at 8:17 pm
Please how do I sort out this type of questions
A company pays rent quarterly in arrears on 1 Jan, 1 April, 1 July, and 1 oct each year. The rent was increased from 90,000 to 120, 000 per year from 1 Oct 2002.
What rent expense and accrual should be included in the company’s financial statements for the year ended 31 January 2003? Also how do you answer the question if the rent was paid quarterly in advance?
March 4, 2014 at 1:05 pm
Can you please explain to me how questions 4 and 5 are worked out?
Although I have seen how it is done at the end of the note I still don’t understand the answer.
Can you please explain how to determine the dates of accruals and prepayments from the accounting period date and each debit and credits on the rental income account?
March 4, 2014 at 10:46 pm
For question 4, the dates the invoices were received and paid are not relevant. We need the cost for the 12 months from January to December .
So the first invoice is not relevant – they are all months for the previous year. The second is for three months dec, jan, and February. Only jan and February are in our year and so only 2/3 of the amount is relevant.
The next three amounts are all for months in our year.
The last amount is for three months dec jan and February. Only December is in our year and so only 1/3 of the amount is relevant.
For question 5, we want the cost for the 12 months from 1 July 2007 to 30 June 2008. From 1 July 2007 to 31 march 2008 (which is 9 months ) the cost is 25920 per year and so the cost for the 9 months will be 9/12 of this figure. From 1 April 2008 to 30 June 2008 (which is 3 months) the cost is 28800 and so the cost for the 3 months will be 3/12 of this amount.
With regard to the prepayment, we have already paid from 1 April 2008 though to 31 March 2009. Our year end is 30 June 2008 and so we have prepaid the period from 1 July 2008 through to 31 march 2009, which is 9 months. The bill for the year was 28800 and so we have prepaid 9/12 of the amount.
Debits and credits are really not relevant here. You are under time pressure in the exam and messing around with t accounts will waste ages. (The exam is not a debits and credits exam and there is not much tested of just debits and credits)
There is no rental income mentioned in either of the two questions. I hope that I have not just wasted half an hour typing all this while I am on holiday because you wrote the wrong test question numbers!!
March 6, 2014 at 7:44 pm
Hello John Moffat,
Thank you very much for the detailed explanation. I got the year counting wrong so i was using the wrong number of months to calculate, but i am clear now and i understand. I need to read questions more closely and carefully now.
You most definitely did not waste your time explaining to me. The test question numbers were the right ones. The question on rental income was not related to any of the questions, perhaps i should have asked how to treat questions if the rental income is asked to be calculated.
Can I ask other questions relating to accruals and prepayments that are not part of the test questions?
March 6, 2014 at 7:52 pm
Certainly you can ask if you have any other problems
March 4, 2014 at 12:58 pm
Please how did you come about the answer D from the Test questions? I did not get it after doing it on my own and even after checking the test answers after the course notes.
A 223,200 19,200
B 223,200 38,400
C 225,600 9,200
D 225,600 38,400
January 17, 2014 at 9:09 pm
hello all, i am asking this without looking at answers for the tests for this chapter ….but i noticed in the notes that RENT EXPENSE prepaid and accrued which is a debit balance account was dealt with….are the journal entries the same for RENTAL INCOME which i would say is a credit balance account.?……i would think not right…so how is prepaid and accrued income dealt with….
January 18, 2014 at 2:57 am
For rent expense, prepaid rent is a debit balance (because we have overpaid and so the person owes us money)
For rental income, prepaid rent is a credit balance (because the person renting from us has paid too much and so we owe money to them)
January 27, 2014 at 8:33 pm
thanks soo much john….now i have the proper trend of thought….
December 7, 2013 at 12:21 am
How is the answer A i dont get it ???????????????????????????????????
Details of a company’s insurance policy are shown below:
Premium for the year ended 31 March 2006, paid in April 2005 $21,600
Premium for the year ended 31 March 2007, paid in April 2006 $24,000
What figures should be included in the company’s financial statements for the year ended 30 June 2006?
Income Statement Statement of Financial Position
A 22,200 18,000 prepayment
B 23,400 18,000 prepayment
C 22,200 18,000 accrual
D 23,400 18,000 accrual
Correct answer is A
December 7, 2013 at 4:05 pm
We are looking at the period from 1 July 2005 to 30 June 2006.
From 1 July 2005 to 31 March 2006 is 9 months and is part of the first premium so is 9/12 x 21,600
From 1 April 2006 to 30 June 2006 is 3 months and is part of the second premium, so is 3/12 x 24,000
So the total expense for our year is 22,200.
Payment was made in April 2006 for year to 31 March 2007, and so the period 1 July 2006 to 31 March 2007 (9 months) has been prepaid.
December 8, 2013 at 12:21 am
ohh i did the first one with 10 months thank u so muchhhhhhhhhhh i can always count on u for a great explanation =D thank u thank u
January 27, 2014 at 9:15 pm
Yes i think it is correct answer.
October 15, 2013 at 10:36 pm
Can you explain for me how question number 3 is worked out? Although I have seen how it is done at the end of the note I still don’t understand the answer. Can you explain for me each debit and credits on the rental income account?
October 16, 2013 at 4:42 pm
September 23, 2013 at 12:45 pm
I didn’t understand the main concept, could you answer in BRIEF:
In what PERIOD will apear in income statement:
October 16, 2013 at 4:46 pm
It is not possible to answer in BRIEF because accrued expense etc. do not themselves appear in the income statement. They are needed in the workings to get the income or expense for the year.
The concept is that in the income statement we show the total expense for the year (not simply the cash paid) and the total income earned for the year (not simply the cash received).
For expenses, if we have not paid enough and still owe money then the total expense is higher than the cash paid (we have an accrual). If we have paid too must then the total expense is lower than the cash paid (we have a prepayment).
The accrual or prepayment appears in the Statement of Financial Position as a current liability or a current asset
July 31, 2013 at 8:56 pm
can you please explain why test question 4 was worked out that way????
July 31, 2013 at 9:07 pm
cant understand the workings of any of the test questions!!!!! help me pls!!!
August 16, 2013 at 5:58 pm
We have to calculate for the year 2006 so we rule out the first bill as it doesn’t include year 2006. Second bill we take 2/3rd of the bill as we include only Jan and Feb for calculating this years bill, then full amounts of the next three bills as it includes these three months, then finally 1/3rd of the bill as it includes one month December for the year 2006 and rest is prepayment.
(2/3rd of 798 ) 532+ 898.8 +814.8 + 840+ (1/3 of 966) 322 = $3407.6
March 20, 2013 at 6:26 pm
Can someone please explain Test Question 1? Why do we include the whole of 9600 in current year’s SOFP?
June 12, 2013 at 4:57 pm
Because it is an accrued expense.. and accruals are included into current liabilities.. hope i helped!
March 19, 2013 at 7:13 pm
Please i need help on questions 2, 3, 4, 5 and 6. Kindly help me. Thank you.
January 30, 2013 at 2:32 am
i need help with the test question 2, 4,5 and 6, please assist
January 10, 2013 at 1:57 pm
how do you know if your answers to the test questions are correct? Thank you
November 9, 2012 at 5:52 pm
sir please verify $20 which are added in th end by alternating the t-a/c can this happen in real ??or can we add these 20$ dollar in the start rather than adding by changing in the end??
November 4, 2012 at 2:11 am
thank you so very much Open tuition, points well taken
October 12, 2012 at 4:16 pm
Thanks to opentuition.for many expamples on accruals and prepayments Im now able to understand the concept.
September 20, 2012 at 2:51 pm
Thanks for the Amit example. This is the case when we did not receive the invoice. Please could someone explain to me if for instance the financial year ends on 30th June 2011 and I have insurance bill running from May 2011 to April 2012 of $ 1,200. The invoice is due for payment in advance. The insurance company has already issued me the invoice when I was closing my books in June 2011 but I have not paid the invoice. I expect to pay the invoice in the next financial year beginning July 2012. What would be the treatment in the Income statement and the Statement of finacial position for this invoice under accrual accounting?
June 18, 2012 at 3:24 pm
Thanks, it’s very good.
But I don’t understand – you can’t just cross out things in the T accounts and change the numbers that have been there, there has to be some system by which to make amendments or fix errors. What is the process?
(I mean the 20$ that he added because the phone expense for the previous year was $20 more than his estimate. He can’t just cross out all the workngs so far and just change the number!!!???)
Please answer asap, my exam is tomorrow.
June 18, 2012 at 7:01 pm
@malkyrox, the crossing out was to explain why it didn’t matter that the accrual last year turned out to be wrong.
And of course you can cross out your workings – in Paper F2 your workings are not looked at!
June 18, 2012 at 8:18 pm
@johnmoffat, Thanks for replying.
I meant that in real life it can’t be just crossed out – so how would you account for this change in real life book-keeping?
i understand what it’s meant to show, but how would you record this extra $20 in the ledger accounts?
July 3, 2012 at 12:45 pm
@malkyrox, You record the amount that is actually paid, when it is paid. If the accrual at the end of the previous year was wrong, then you do not change it. It simply means that the charge in the income statement this year takes into account the fact that the opening accrual turned out to be wrong.
June 18, 2012 at 8:19 pm
@johnmoffat, and thanks for all your videos, they are helping me tremendously and every time I meet someone who learns accounting I recommend them this site…
May 20, 2012 at 9:21 pm
can anyone help me with question 4
May 20, 2012 at 9:22 pm
videos are great but the answers to the tests are not very helpfull – they dont show workings… or how to attempt questions… anyone got any advise on this..
July 3, 2012 at 11:14 am
@msoph, download the notes or view online for F3(opentuition), and scroll down to page number 175 & 176 where you will find out exact answers to the questions 1, 2, 3, 4. this is how your working/solutions in the exams would be.
And it has answers to all other examples in the notes.
Hope it helps.
April 13, 2012 at 12:50 am
Strugling with Test Q3:
Anyone who can help explain the rationale behind (I have looked at answer, but still not sure I get it)
April 21, 2012 at 1:22 pm
@martinras, You start by inserting the prepayments and accruals, both brought down and both carried forward.
Accrual b/d 50880 l Prepayment b/d 68880
The carried forward entries must be now on the opposite side.
bal c/f 74880 l balance c/f 44160
Since you are receiving the cash because this is rent payable to yourself you must debit your cash and credit the rent account.
and then you must find the missing figure on the left which will be the rental charge for the year. Hope this helps
March 26, 2012 at 1:55 pm
i am trying to watch f3 videos but every time i do so i get the message: video not found.i use Firefox 9 and the latest flash player on a win 7 Toshiba laptop. what could be my problem?
March 26, 2012 at 2:11 pm
@mutiba, try google chrome,
video plays fine
November 7, 2011 at 10:59 pm
I have the same issue, can anybody please explain F3, Ch. 4, Q3 ?
October 15, 2011 at 7:06 pm
CAN SOMEBODY PLEASE EXPLAIN F3 CHAPTER 4 QUESTION 3?
August 28, 2011 at 11:03 pm
a company has contracted ists insures in respect of fraud committed by an employess, the company is insured for theft but the insurance company maintains that the nautre of the fraud committed is commerial and is not covered by the policy. the company has not yet received an opinion from its attorney…
How should this be treated under IAS 37
August 4, 2011 at 1:43 pm
Great lecture on Accruals. Thank you
One question however.
It seemed like the accrual (e.g. Amit’s $950) in into the Income Statement for Y/E 31 Mar 2001 (example 2), and then again as the actual expense into the Income Statement for Y/E 31 March 2002 (example 4).
Shouldn’t you only record the expense once on the Income Statement when it was accrued, not when the bill got paid? Surely the actual expense would go into the next year’s cash flow?
December 16, 2010 at 5:15 pm
Sorry Mustafe the above explanation is for F3 chapter 4 Q4 your problem is for Q5 let me try it once again.
For Income Statement amount
The Questions Says Premium for year ended 31 March 2008 that
means a year from 1 April 2007 to 31 March 2008 within that year we have to spend $ 25920 if you look down the question it says calculate income statement amount for the year ended 30 June 2008 that means a Year runnig from 1 July 2007 to 30 June 2008
so we have Paid the 25920 in April 2007 that is three months before our accounting period starts that means three months belong to previous accounting year so we have to just calculate 9 months in our accounting year that is from 1 July 2007 to 31 March 2008 in calculate it wil be 9/12* 25920= $ 19440
so now we are in 1 April 2008 that is three month to go to our accounting year of 30 June 2008. the questions says the Second Payment is April 2008 so Only three month belong to our accounting Period and we will calculate it like this 3/12*28800= $7200
when you ad $19440+$7200= $26640 and this the amount that will the income statement as an expense for 30 June 2008
For the Statement of Financial Position amount
the Prepayment will be the amount Paid in April 2008 less the three months that belong to our accounting period of 30 June 2008
in calculation it will be like this $28800-$7200= $ 21600
so the correct answer that will make both items correct is (A)
From: Qasim Jama,
Hargeisa, Somaliland (Formerly North Somalia)
BBA in Accounting and Prospective ACCA Student
Dear mustafa i tried to make your answer as perfectly as possible however i am not liable to any loss or damage resulting from information which i gave . you can ask also a more knowlegeable person byeeeee
Sorry for above explanation i couldnt delete it however it will help you or another freind somewhere on this earth byeeeeee
December 16, 2010 at 3:54 pm
My dear freind they divided the year into four equal parts with three months in each division and that is what they call a “Quarter”
so the problem is that there is an overlap between quarters.
Quarter to 30 Nov. 2005 means three months ending in 30 Nov. 2005 that is to say three months starting from Sept. 1 2005.
in the first transaction we have recieved the bill for the three months starting from Sept. 1 2005 or ending in 30 Nov. at December 2005 so the bookkeeper has already entered it in Telephone expense account at December 2005 and the tellephone expense account has been closed off with zero balance by the accountant although it has been paid in january of 2006 it is the expense of previous year just what we do in January 2006 is to Debit Accrual account and Credit Cash Account no effect on expense account so no need of inclusion of amount First Transaction because we are working on 31 Dec. 2006
in the Second Transaction it says Quarter to February 28 2006 that is three months starting from Dec.1 2005 so that is one month of this expense belongs to the year 2005 and two month for 2006 wihich is our focus so in the second transaction the amount we charge tellphone is 2/3*798= $ 532
for the third, fourth and fifth transaction add for the whole amount because all the nine months are in 2006
Note: now we have calculate the amount of tellephone expense for only 11 months of 2006
in the last transaction when the accountant is preparing the financial statements at 31 December 2006 may estimated although you can see it from the problem now 966 amount for quarter to February 2007 so the accountant should include one months tellephone expense of these three months to Tellephone expense of 2006 and that months is December of 2006. the amount is 1/3*966= $ 322 Approx
so when you add up all the amounts it is (2/3*798+898+814.8+840+(1/3*966)= $ 3407.6 and the correct answer is (C)
November 9, 2010 at 8:26 pm
does anybody know about f3 chapter 4 q5
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