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A COMPANY PAYS RENT QUARTERLY IN ARREARS ON 01 JAN, 01 APR, 01 JULY AND 01 OCT EACH YEAR. THE RENT WAS INCREASED FROM 90 000 PER YEAR TO 120 000 PER YEAR AS FROM 01 OCT 2012.
WHAT RENT EXPENSE AND ACCRUAL SHOULD BE INCLUDED IN THE COMPANYS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 JAN 20X3.
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We need the expense for the period 1 Feb 20X2 to 31 Jan 20X3.
From 1 Feb X2 to 30 Sep X2 is 8 months, so the expense is 8/12 x 90,000.
From 1 Oct X2 to 31 Jan X3 is 4 months, so the expense is 4/12 x 120,000.
The total expense is the two together.The last payment prior to 31 Jan X3 was on 1 Jan, and was payment for Nov, Dec, Jan. Therefore the accrual at #1 Jan is for January, which is 1 month and is therefore 1/12 x 120,000.
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