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Sir, could you please help me with this one because it is very poorly explained in BPP P/R kit:
The electricity account for the year ended 30 June 20X1 was as follows.Opening balance for electricity accrued at 1 july 20×0 $300
Payments made during the year
1 August 20×0 for three months to 31 July 20×0 $600
1 November 20×0 for three months to 31 October 20×0 $720
1 February 20×1 for three months to 31 January 20×1 $900
30 June 20×1 for three months to 30 April 20×1 $840
1 August 20×1 for three months to 31 July 20×1 $840I did like:
1)Reversal of accrual: Cr Exp a/c
2)Dr Exp account with $200 (1/3 of $600, 30 June-31 July)
3)Dr Exp $720
4)Dr Exp $900
5)Dr Exp $840
6)show the accrual of 2 months (May+June) 2/3 of $840, so Dr Exp Cr Accrual with $560
I got wrong answer as to the answers at the back of the book. there is used completely different method showing only calc’s without any steps and explanations.
Waiting for you to reply, sir.
thank you.In future you must ask in the Ask the Tutor forum if you want me to answer – this forum is for students to help each other.
Don’t try and do these questions using t-accounts. It is not a double entry exam and to write up t-account simply wastes time that you will not have.
We need the total expense for the period 1 July X0 to 30 June X1.
So go through the payments and list what is relevant for this period.The first payment is for May, June, July X0, so only July is relevant – 1/3 x 600 = 200
The whole of the next free payments are relevant: 720 ; 900; 840.However the last payment is for May, June and July X1. Only May and June are relevant for our period, so – 2/3 x 840 = 560
Then add them all up 🙂
Excuse me sir, I am in week of revision now and was rereading everything you said.
Could you please go through it again since I’m having different answer while calculating this.
Having revised this chapter I’ve understood that:
1.) there are 2 types of questions in prkit: with and without opening closing balances!!
So after my own contemplation and following general rules about the steps I’ve understood that this type of question( with open/closing accrual prepayment) should be done just strictly following the rules ALTHOUGH PLEASE COMMENT.
2) so I did it like:
1. Step of reversal cr expense account 300
2. Account for all the payments NO MATTER ARE THEY REFERING TO PREVIOUS PERIOD OR NOT: so full amount of 600 is debited
3.dr 720
4.dr 900
5.dr 840
6. Dr 560
Answer then is correct
So then the LOGIC of calculations:
We accounting for full payment of 600 because we have opening accrual aaand we account for accrual only in the end of the period because we have no closing prepayment or accrual ( if so we then account for them in straight way aaand accounted full payment again)
PLEASE CORRECT ME SINCE ITS MY OWN CONCLUSIONS after comparing the answers and calculations. And please explain the logic of the correct calculations!!
THANK YOU! God bless you sir!
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