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Dear sir,
Kindly help me out because for this question my book has only provided the answer but not the solution.
A business has an accounting year that ends on 30 sept. Its insurance premium are paid in advance on 1 july each year.premiums have been paid in the three years as follows: Year 1= 1800, Year 2=2000, Year 3=2400. How much will be debited in the income statement for year 3?The answer is 2100 but I keep getting 1800. I don’t understand my mistake.
For the third year, the expense will be 9 months of the year 2 payment (covering 1 October to 30 June, which is 9 months) plus 3 months of the year 3 payment (covering 1 June to 30 September).
So the total is (9/12 x 2,000) + (3/12 x 2,400) = 2,100.
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