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A company owns three properties which it rents out. Rent amounts to $600 per quarter per property due on 31 January, 30 April, 31 July and 31 October. The properties have been occupied throughout the year to 31 December 20X6. Two tenants pay in advance and one in arrears.
What amount for rental income should be included in profit or loss for the year to 31 December 20X6?
$1,800
$2,400
$6,600
$7,200
The correct answer is D.600 × 3 × 4 = $7,200
I don’t understand this question at all and how the answer was arrived at. Please explain.
There are 4 quarters in a year, and so the total rent earned in the year is 4 x $600 from each property.
Given that there are 3 properties then the total earned is 3 x 4 x $600.
As I explain in my free lectures on accruals and prepayments, the income shown in the SOPL is the total amount earned regardless of whether or not they have received the cash. (Any cash still owing or paid in advance will appear in the SOFP as an accrual or prepayment but does not affect the amount actually earned).
Have you watched my free lectures? They are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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