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February 4, 2016 at 11:04 am
thanks for valuable lecture on prepayments and accruals.
i fully understand question 1 and its answer. However, im struggling putting a title to currents assets in this questions:
a. 28,800 + 2% interest = is it our advance payment / receivables or ?
b. 14400 = this is ok. i understand its prepayment under heading current asset.
c. 9600 = i guess this must be receivables
Please let me know how to locate a name for these assets.
John Moffat says
February 4, 2016 at 2:45 pm
(a) is a receivable. (It is certainly not an advance payment – we are owed money which is payable to us the next day after the end of the period)
(b) yes – it is a prepayment
(c) this could either be called a receivable, or accrued income – it doesn’t matter
Hope that helps
February 5, 2016 at 6:44 am
February 5, 2016 at 8:07 am
You are welcome
January 4, 2016 at 9:55 am
I am unable to understand the rent ledger in the answers to question 3.. Could you please explain why did u debit 50880 and 74880 and credit 68880 and 44160..
January 4, 2016 at 5:26 pm
It is rent received that we are dealing with.
At the start of the year they were owed 50,880 (rent in arrears) and so a debit balance. At the end of the year they were owed 44,160 and so need to end up with a debit balance which means carrying it forward from the credit side.
Similarly at the start of the year they owed out 68,880 (rent received in advance) and so a credit balance. At the end of the year they owed out 74,880 and so need to end up with a credit balance, which means carrying it forward from the debit side.
It is actually easier to do it without t-accounts (you are not required to produce t-accounts in the exam):
The cash received was 1154880.
This includes 50880 that was owing at the end of last year, but it last years income, so that needs subtracting.
At the end of last year they had already received 68,880 but that is income for this year, so that needs adding.
At the end of this year they were still owed 44,160, which is this years income, so that needs adding.
Finally, at the end of this year, they had received 74,880 in advance – so it is included in the cash, but is next years income (not this years) and so that needs subtracting.
So the income for this year is 1154880 – 50,880 + 68880 + 44160 – 74880 = 1142160
January 5, 2016 at 6:57 am
You’re right.. its much much easier without the t account?.
Thanks a lot.
January 5, 2016 at 8:01 am
December 11, 2015 at 4:28 am
great lecture that you. i have look thru. the comment and response regarding test 1, but am still not getting the answer c and am so worried bcos i now fully understand this topic but not getting answers.
this is what i did: £28800 is till company asset plus the prepayment of 14400 (8/12*21600) the total gives me £43200 and nil liability which is not in the option.i did not include the rent received bcos that will go under P & L as income received… plssss help me John.
thank you for great work.
December 11, 2015 at 6:55 am
But there is interest owing to us on the loan (because it has been owed for a year) and so that is an extra current asset.
Also, the rent is not received until after the year end, but it is rent for 2008 and so is owed to us still at the end of the year – so again another current asset.
November 4, 2015 at 6:31 pm
I do not understand how to calculate the test question 5, i understand that the company has paid in advance for 9/12×28800 =21600, therefore those are prepayments and they go to the SFP, but now how to i get the figure which goes to the SOPL.
November 4, 2015 at 8:12 pm
The expense for the year 1 July 2007 to the 30 June 2008 is 9 months of the payment for the year to the end of March 2008 plus 3 months of the payment that was for the year to the end of March 2009.
November 5, 2015 at 6:41 am
Thank you John
was making a mistake of take April 2007-June 2007 into account yet its outside the financial year.
Hope I remember that during the exam
November 5, 2015 at 10:07 pm
October 22, 2015 at 10:25 am
Oh Okaayy…..Got it Sir
Thank you very much!!
As always, your lectures are brilliant!!!!
October 22, 2015 at 10:47 am
October 22, 2015 at 10:13 am
Sir, I have a doubt in example 4.
Last year, amit had estimated a $950, which was accrued expense.This year, what has become of it? Has it been paid this year and is the accruals in the telephone account $950 representing that? If so, where has the cash gone?
October 22, 2015 at 10:21 am
If you look at the first payment, made on 12 April 2001 – the questions says that it is $950 for the 3 months to 31 March 2001.
So it was paid this year!!!
You will see in the lecture that when it is paid we credit cash and debit telephone as always.
October 20, 2015 at 12:46 pm
@karimdad kindly watch the lecture fully and again
October 20, 2015 at 5:24 pm
I watched but i didnt understand that y accrual and expense accounts are reversed
October 20, 2015 at 11:48 am
i have a question from bilywah and my question y the transaction is reversed? please clear it to me.
October 19, 2015 at 6:22 pm
My calculation for Current Asset is:INTEREST EARNED BUT NOT RECIEVED IS 28800(Loan)*2/100=R576
Insurance:R21600 paid.i then 21600/20.This 20 is 12 current months plus 2009 8 months= 20 months.I then found R1080 per month.I then multiplied R1080 by 2009 eight months i then got R8640 prepayment.
Rent income:As the tenant has paid the last six months which means at the year end we recognized 9600 cash of rent plus 9600 of Accrued income as at year end.
Total asset:9600+8640+576=R18 516.But there is no such answer i dont know why.Please help me.
October 19, 2015 at 6:28 pm
The question says that the 21600 was for one year (the year to 31 August 2009).
So the amount of the prepayment is 8/12 x 21,600.
Also, you have missed out the fact that at the year end then the loan itself (of 28800) was still owing to us – so that is a current asset as well.
(I assume you are watching the lectures – they are a complete course for Paper F3. Also (as you will have seen on the contents page of the lecture notes) the answers to all of the tests are printed in the Lecture Notes)
October 19, 2015 at 6:59 pm
Yes am watching them.Ohk Thanks i did not notice that there are answers,i have seen them.I thought that the year end is December 2008,so 2009 August is the second year.Thanks.
October 19, 2015 at 8:35 pm
October 13, 2015 at 6:30 pm
dear sir at 11:45 you made a misstatement.you said credit accruals and debit telephone while its supposed to be,debit accruals with 950 and credit telephone with 950 to reverse the transaction. Sorry for pointing out the error, didn’t intend to be a critic, all the same great lecture!!
October 8, 2015 at 4:09 am
I don’t understand the test, question 1.
The answer is D, but I think that “$21600*8/12” would be included in current liability. Because it is payable.
What’s wrong with me? Please give an answer.
Thanks in advance.
October 8, 2015 at 9:37 am
The 21,600 was paid during 2008 and so at 31 December 2008 they do not owe anything – they have overpaid up to 31 August 2009 and so there is a prepayment.
October 2, 2015 at 2:26 pm
I have a little doubt with accruals example in this lecture
Assests= Equity+ liability
Now when we took account of £950 we deducted that amount from our income statement as an expense which means Profit /Cash( current Assent) will be less in statement of financial position. In order to have balance of above equation either equity or liability should decrease. The amount £950 doesn’t have any effect on equity so if assets in form of cash is reducing, liabilities should decrease. But on financial statement we show that accruals as liability and it will increase by 950
October 2, 2015 at 2:38 pm
But it does affect equity!! Equity is capital plus profits, so if profits fall then so does equity.
However, if you are watching the lectures in order (as you should) then for the moment we are only looking at sole traders where we do not use the word equity. The total capital owing to the owner is what it was at the start of the period + profits – drawings.
When we come to look at limited companies later in the lectures, we use the word equity for the total owing to the owners instead.
Making an accrual increases the expense and therefore reduces the profit and therefore reduces the total capital (equity).
Making an accrual increases liabilities and therefore reduces the net assets.
The total capital (equity) will still equal the net assets (which is the basic accounting equation).
October 2, 2015 at 3:08 pm
sorry John i didn’t watch full lecture ( example 4) and therefore there was a doubt but now its all clear.
Thanks for the lecture video
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