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Hallo,
I am a bit confused with this example, wondering why when we pay quarterly in advance, we will have something left as arrears that we have to add to this advance payment. Could you help me:
H began trading on 1 July. The company is now preparing its accounts for the accounting year ended 30 June year 1. Rent is charged for the year from 1 April to 31 March, and was $1,800 for the year ended 31 March year 1 and $2,000 for the year ended 31 March year 2. Rent is payable quarterly in advance, plus any arrears, on 1 March, 1 June, 1 September and 1 December.
The charge to H ‘S income statement for rent for the year ended 30 June year 2 isThank you!
The part about ‘plus any arrears’ is irrelevant and was stupid for them to put in the question.
We want the expense from 1 July year 1 to 30 June year 2.
For 1 July to 31 March (9 months) the rent is 9/12 x 1,800.
From 1 April to 30 June (3 months) the rent is 3/12 x 2,000.So the total rent is $1,850
Hallo,
I understand from the example that they are asking for the rent for year 2, but the solution for me, as calculated shows the rent for year 1, how do I know that this solution is for year 2, when it makes more sense to me that it is for year 1, the way it is calculated?
Thank you!
This company has a year end of 30 June each year, and so we need the expense for the year ended 30 June X2, which is the period from 1 July X1 to 30 June X2.
A company can have its year end on any date they want – they do not always have year ends of 31 December each year.
Hallo,
I can’t understand why you’re saying that:
“we need the expense for the year ended 30 June X2, which is the period from 1 July X1 to 30 June X2”– if we count from 1 July X1 to 30 June X2 – this is 24 months, and they are asking for
“The charge to H ‘S income statement for rent for the year ended 30 June year 2 is” – which should be 12 months only, shouldn’t it?And, I think your solution is for accounting year 1 and also they are making a mistake saying for year 2, when they are asking for accounting year 1.
Am I correct or wrong?
Thank you!
From 1 July X1 to 30 June X2 is certainly not 24 months – it is 12 months!!
You are correct about your second point – they ask for year 2 but earlier they say that they are preparing their accounts for year 1.
The question is ridiculous (and in the exam they will always state proper years (e.g. 2013, 2014 etc) not ‘year 1’ or ‘year 2’ which is so confusing).I don’t know what book you are using but I think you might be better using one of the Revision/Exam Kits from one of the ACCA approved publishers. They contain lots of exam-standard questions that are sensible 🙂
My confusion comes from the writing 1 July X1 to 30 June X2 – and was wondiring why you wrote it like that, because for me X1 starts on 1 July X1 to 30 June X1, and this is 12 months, and then I continue for year 2, which let’s say starts on 1 July X2 to 30 June X2, what is the meaning of mixing X1 with X2?
Or you mean e.g.1 July 2013 to 30 June 2014 = a/cting year, then I got it.
I also got confused with the prepayment days, as I this info is not used in the calculation as well.
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