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  1. Hello sir! i have one exercise please kindly tell me the answer only.
    At 1 September, the motor expenses account showed 4 months insurance prepaid of $80 and fuel costs accrued of $95. During September, the outstanding fuel bill was paid, plus further bills of $245. At 30 September there was a further outstanding fuel bill of $120.

    What was the expense included in the statement of profit or loss for motor expenses for September?

  3. hello sir..
    great vedios. i appreciate. i have a question that is these vedios and notes are enough to study? i mean if i do only follow your lectures and notes are these enough to pass or should i follow the book aswell? please reply i am just near to my exam days..

    • The lectures and notes cover everything you need to be able to pass the exam well. However it is important that you have a Revision Kit and practice all the questions in it – practice on exam standard questions is vital to passing the exam.

  4. Hi,

    First of all I want to thank you for doing these videos; they’re of great help to me.

    I have a question in relation to prepayments. You say that when a business starts a new financial year, you credit the previous year’s prepayment and debit whatever expense it may relate to.
    In my workplace (I am working as I learn), we expense prepayments as the costs are realized on a month-by-month basis. For example, a prepayment of 拢1,200 over a 12 month period, we would expense at 拢100 during each month-end period. This is different to how you explained it in this video…can you explain which method is correct and why, please?

    Many thanks,

    • In practice most companies do deal with it monthly, but that is for management purposes (so that they can see the profitability month my month). However, the financial accounts are prepared once a year and there is no requirement to do things monthly.
      In the exam you will only be expected to deal with the expense (and any accrual or prepayment) at the end of the year.

  5. Dear Mr Moffat

    Do you transfer to income statement amount that covers nine months payment – 1850 dollars or amount that covers nine months payment plus accrued expense 2800 dollars ? I didn’t catch it while watching lecture. Regards. Rafal

  6. Hi John, hope you are well, at 11.45 when you are reversing out the accrual for year 2 you say “Cr accual and Dr Expenses” but what you actually wrote down is the opposite, can you clarify this point please?

    Many thanks,
    Cindy

  7. sir, could you please explain why the $950 is treated as expense in SOPL for example 2 n 4 which are from different period? i understand if it happen in example 2 or 4. besides, wouldn’t this considered double counting, which we want to avoid by reversing the account

  8. plz explain this

    the electricity bill payable accaount for the year ended 30 june 2008 was as follows

    opening balance for electricity accured at 1 july 2007 $800
    1 aug 2007 for three months to 31 july 2007 $900
    1 nov 2007 for three months to 31 oct 2007 $700
    1 feb 2008 for the months to 31 jan 2008 $930

    which of the following is the appropriate entry for electricity

    accured at charged to income statement
    june 2008 year ended 30 june2008
    A 620 3190
    B 580 3480
    C 620 3520
    D 560 3720
    answer is A but why

  9. Dear sir,

    thanks for valuable lecture on prepayments and accruals.

    i fully understand question 1 and its answer. However, im struggling putting a title to currents assets in this questions:

    a. 28,800 + 2% interest = is it our advance payment / receivables or ?

    b. 14400 = this is ok. i understand its prepayment under heading current asset.

    c. 9600 = i guess this must be receivables

    Please let me know how to locate a name for these assets.

    • (a) is a receivable. (It is certainly not an advance payment – we are owed money which is payable to us the next day after the end of the period)

      (b) yes – it is a prepayment

      (c) this could either be called a receivable, or accrued income – it doesn’t matter

      Hope that helps 馃檪

      • But sir, I agree its receivable, but we gave this loan during the year so we had to credit cash and debit receivables. So this entry is offset and current assets are 0 after this entry. On 1st Jan 2009 we get money plus interest. We debit cash with the whole amount and credit receivables with net amount and interest income with the interest. Then again is offset but the interest difference. How come we included 28800 on current assets after these entries?

      • We are only asked what the current assets and/or receivables are in relation to the items listed.
        Obviously there is likely to also be a cash balance, but we have no idea what that will be (because there are bound to have been lots of other cash transactions that we do not know about).

  10. Hi,
    I am unable to understand the rent ledger in the answers to question 3.. Could you please explain why did u debit 50880 and 74880 and credit 68880 and 44160..

    • It is rent received that we are dealing with.

      At the start of the year they were owed 50,880 (rent in arrears) and so a debit balance. At the end of the year they were owed 44,160 and so need to end up with a debit balance which means carrying it forward from the credit side.

      Similarly at the start of the year they owed out 68,880 (rent received in advance) and so a credit balance. At the end of the year they owed out 74,880 and so need to end up with a credit balance, which means carrying it forward from the debit side.

      It is actually easier to do it without t-accounts (you are not required to produce t-accounts in the exam):
      The cash received was 1154880.
      This includes 50880 that was owing at the end of last year, but it last years income, so that needs subtracting.
      At the end of last year they had already received 68,880 but that is income for this year, so that needs adding.
      At the end of this year they were still owed 44,160, which is this years income, so that needs adding.
      Finally, at the end of this year, they had received 74,880 in advance – so it is included in the cash, but is next years income (not this years) and so that needs subtracting.

      So the income for this year is 1154880 – 50,880 + 68880 + 44160 – 74880 = 1142160

  11. Hi John,
    great lecture that you. i have look thru. the comment and response regarding test 1, but am still not getting the answer c and am so worried bcos i now fully understand this topic but not getting answers.

    this is what i did: 拢28800 is till company asset plus the prepayment of 14400 (8/12*21600) the total gives me 拢43200 and nil liability which is not in the option.i did not include the rent received bcos that will go under P & L as income received… plssss help me John.
    thank you for great work.

    • But there is interest owing to us on the loan (because it has been owed for a year) and so that is an extra current asset.
      Also, the rent is not received until after the year end, but it is rent for 2008 and so is owed to us still at the end of the year – so again another current asset.

  12. Dear John

    I do not understand how to calculate the test question 5, i understand that the company has paid in advance for 9/12×28800 =21600, therefore those are prepayments and they go to the SFP, but now how to i get the figure which goes to the SOPL.

  14. Sir, I have a doubt in example 4.
    Last year, amit had estimated a $950, which was accrued expense.This year, what has become of it? Has it been paid this year and is the accruals in the telephone account $950 representing that? If so, where has the cash gone?

    • If you look at the first payment, made on 12 April 2001 – the questions says that it is $950 for the 3 months to 31 March 2001.

      So it was paid this year!!!

      You will see in the lecture that when it is paid we credit cash and debit telephone as always.

  17. Hello John.
    My calculation for Current Asset is:INTEREST EARNED BUT NOT RECIEVED IS 28800(Loan)*2/100=R576
    Insurance:R21600 paid.i then 21600/20.This 20 is 12 current months plus 2009 8 months= 20 months.I then found R1080 per month.I then multiplied R1080 by 2009 eight months i then got R8640 prepayment.
    Rent income:As the tenant has paid the last six months which means at the year end we recognized 9600 cash of rent plus 9600 of Accrued income as at year end.
    Total asset:9600+8640+576=R18 516.But there is no such answer i dont know why.Please help me.

    • The question says that the 21600 was for one year (the year to 31 August 2009).
      So the amount of the prepayment is 8/12 x 21,600.

      Also, you have missed out the fact that at the year end then the loan itself (of 28800) was still owing to us – so that is a current asset as well.

      (I assume you are watching the lectures – they are a complete course for Paper F3. Also (as you will have seen on the contents page of the lecture notes) the answers to all of the tests are printed in the Lecture Notes)

  18. dear sir at 11:45 you made a misstatement.you said credit accruals and debit telephone while its supposed to be,debit accruals with 950 and credit telephone with 950 to reverse the transaction. Sorry for pointing out the error, didn’t intend to be a critic, all the same great lecture!!

  19. Dear sir,
    I don’t understand the test, question 1.
    The answer is D, but I think that “$21600*8/12” would be included in current liability. Because it is payable.
    What’s wrong with me? Please give an answer.
    Thanks in advance.

  20. Hello John,
    I have a little doubt with accruals example in this lecture
    We know
    Assests= Equity+ liability
    Now when we took account of 拢950 we deducted that amount from our income statement as an expense which means Profit /Cash( current Assent) will be less in statement of financial position. In order to have balance of above equation either equity or liability should decrease. The amount 拢950 doesn’t have any effect on equity so if assets in form of cash is reducing, liabilities should decrease. But on financial statement we show that accruals as liability and it will increase by 950

    • But it does affect equity!! Equity is capital plus profits, so if profits fall then so does equity.

      However, if you are watching the lectures in order (as you should) then for the moment we are only looking at sole traders where we do not use the word equity. The total capital owing to the owner is what it was at the start of the period + profits – drawings.
      When we come to look at limited companies later in the lectures, we use the word equity for the total owing to the owners instead.

      Making an accrual increases the expense and therefore reduces the profit and therefore reduces the total capital (equity).
      Making an accrual increases liabilities and therefore reduces the net assets.

      The total capital (equity) will still equal the net assets (which is the basic accounting equation).

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