# Accruals and Prepayments Example 2

1. says

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

2. says

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.

• says

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.

3. says

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?

• says

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

• says

I shall keep that in mind. Thanks

• says

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

• says

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 )

• says

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

4. says

Can anyone help me? I can’t understand the entire chapter 4 at all.

• says

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.

• says

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

5. says

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?

• says

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!)

• says

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.)

6. says

I tried working the rent questions (no. 3 &6) but couldn’t seem to get the logic behind it.
Kindly help explain.
Thanks.

• says

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:

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

• says

Many thanks…

7. says

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.

8. says

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.

9. says

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?

Expense Prepayment
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 ???