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Dear sir,
A company receives rent. Rent, receivable quarterly in advance as follows:
$
1 October 2011 3 month to 31 December 2011 7,500
30 December 2011 3 month to 31 March 2012 7,500
4 April 2012 3 month to 30 June 2012 9,000
1 July 2012 3 month to 30 Sep 2012 9,000
1 October 2012 3 month to 31 December 9,000The answer in the BPP revision kit is C: $34,000 credit(PAL)
$3,000 rent in advance (CR) (SFP)How did they reach this answer?
A company receives rent. Rent, receivable quarterly in advance as follows:
$
1 October 2011 3 month to 31 December 2011 7,500
30 December 2011 3 month to 31 March 2012 7,500
4 April 2012 3 month to 30 June 2012 9,000
1 July 2012 3 month to 30 Sep 2012 9,000
1 October 2012 3 month to 31 December 9,000What figures based on the receipts, should appear in the company’s financial statements for the year ended 30 November 2012?
The answer in the BPP revision kit is C: $34,000 credit(PAL)
$3,000 rent in advance (CR) (SFP)How did they reach this answer?
We need the income from the period 1 December 2011 to 30 November 2012.
The income for December 2011 = 1/3 x 7500 = $2,500
For Jan, Feb, Mar 2012 it is $7,500
For Apr, May, Jun 2012 it is $9,000
For Jul, Aug, Sep 2012 it is $9,000
For Oct and Nov 2012 it is 2/3 x 9,000 = $6,000
The total of these is $34,000 and it is obviously a credit because it is income.At the end the year we have already received income for December, which is 1/3 x 9,000 = 3,000. So this is rent received in advance and is therefore a credit in the SOFP
Because the cost for 3 months to 31 December 2011 is 7,500, and December itself is 1 month!
“Because the cost for 3 months to 31 December 2011 is 7,500, and December itself is 1 month!”
Briefly could you explain what do you by that.
The cost for 3 month is 7,500, then why should we account for any prepayment?The year end is the end of November, therefore the amount paid for December is a prepayment.
At 31 March 2012, a company had oil in hand to be used for heating costing $8,200 and an unpaid heating bill for $3,600.
At 31 March 2013, the heating oil in hand $9,300 and there was an outstanding heating oil bill of $3,200.
Payments made for heating during the year ended 31 March 2013 totalled $34,600.
What should appear in the company’s SOFP for heating oil for the year?
The answer is $33,100
-What does “heating oil in hand” means in this context?
-How to obtain the answer?Thanks.
Heating oil in hand means inventory of heating oil.
You know how much cash they paid and so you can adjust by the opening and closing accruals to calculate how much oil they actually bought.
Then you can adjust the oil they bought by the opening and closing inventories to find out how much oil they used – this is the figure that should appear in the Statement of Profit or Loss.
(I don’t believe that the question would have asked for what would appear in the Statement of financial position, which is what you have typed. If it did, then the inventory of oil would appear as a current asset, and the accrual would appear as a current liability.)
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