hey why does the 1 que, include the loan amount. when the business loans an employee, doesnt the cash go down and recivable increase. since both of them are current asset there will be no effect to the current assets right.
I
Irsyad·
the company give loan to the employee. Hence, it is considered as prepayment since the employee owe the money to the company. The current asset will change as the prepayment increase. prepayment=current asset. then you will get the prepayment 29,376 because the employee paid on january 2009, which is the next financial year
C
Chen Yang·
quiz 1 : why the cash paid in 2008 ( $21600) is not included in current asset ?
M
methu·
that amount is for for 12 months. from which 4 months for 2008 + 8 months in 2009 (aug). this means the prepaid 8 months should be added to the current assest. thus the related value for the 8 months is only included as prepayment
K
Ksenija·
question 2-how did we get the prepayment 38,400? thanks
J
John MoffatTutor·
If you click on 'review quiz' after submitting your answers to the test then the workings for the answer will appear.
M
Maryam·
I understood all the other questions except question 1- if the company paid insurance in 2008, covering the year ending 31 aug 2009, doesn't that mean they paid for the next 8 months as well? so shouldn't it be (21000 x 12/20)?
please explain anyone..
J
John MoffatTutor·
They had paid for the year (i.e. 12 months) up to 31 August 2009 (i.e. 1 September 2008 to 31 August 2009) The accounting year end is 31 December 2008 and so they had prepaid 8 months (1 January 2009 to 31 August 2009) of the 12.
M
Maryam·
Thank you!
J
John MoffatTutor·
You are welcome :-)
P
priya·
not able to understand 4th question
A
Aung Kyaw·
Total rent received: xxx
(1 Jul 2005 ~ 30 June 2006)
b/d rent in advance: xxx
(Balance at 1 Jul 2005)
c/d rent in advance: (xxx)
(Balance at 30 June 2006)
b/d rent in arrears: (xxx)
(Balance at 1 July 2005)
c/d rent in arrears: xxx
(Balance at 30 June 2006)
Previous year's ending dates become starting date for this year.
Then you get actual rent received for the year by adding and subtracting these balance to total amount.
M
Mohit·
In question no 3 why we multiple by 25920×3/4 why we do it please help for it...
T
Tu·
3/4 =9/12 months. the period of financial period is from 1/7/2007 to 30/6/2008. The transaction at 4/2007 is a prepayment from 1/4/2007 to 31/3/2008. As we can see, we just need to record from 1/7/2007 to 31/3/2008, so it's $25920*9/12
Sorry, I'm not good at English at all. I hope my answer can help you.
A
Alyssa·
On question 3, can you explain why 2/3 when multiplied by $798, please?
S
Study·
Quarter to 28 February is for the months December 2005, January 2006 and February 2006. We're multiplying $798 x 2/3 so that we get the expenses for 2 out of three months i.e. January 2006 and February 2006.
P
Peyman·
where we could get the study book of this course?
please sent me an email on peyman.n1990@gmail.com
A
Andrii·
for Question 1 my calculator gives result =28880+(28880*0.02)+(21600/12*8)+9600 = 53457.6, whilst answer is 53376 somehow
J
John MoffatTutor·
It is 28,800 and not 28,880 in the first two terms of your expression.
Z
zoha·
im stuck on question 3 please help
J
John MoffatTutor·
Have you looked at the answer (which appears after submitting your answers and then clicking on 'review quiz'), and did you watch the free lecture first?
A
Ahmed·
I do not understand question 5 and 6. Can someone explain it please?
S
Sujin·
I'm also stuck with question 5 and 6. I had watched the lecture thoroughly but somehow it does not make sense to my head. It'd be really helpful if I can get an explanation verbally rather than just a calculation. Can you please help me sir?
A
Aung Kyaw·
I know it is months late. But I will explain as I understand these types of questions. These questions give total rent received amounts (i.e total of received in advance and arrears)
Year ended 30 June 2006 means year start is at 1 July 2005. Then c/d balance of the previous year become b/d balance for the year (balances at 30 June 2005 become b/d balances at 1 July 2005)
Question 4 states total cash received in the year is 2,003,040 ( total of advance and arrears). Rent received in advance for previous year is the rent we actually get for this year ( b/d rent received in advance 323,040) and rent received in advance during this year mean we already get the money for next year it also means this money do not have anything to do with this year's SOPOL (c/d rent received in advance 346,560). Then you add the b/d balance to total cash and subtract the c/d balance.
For the arrears, rent received in arrears from previous year means late payment from previous year it has nothing to with this year's SOPOL. ( arrears at 30 June 2005 become b/d balance for this year) then arrears at 30 June 2006 become c/d balance this is the money we actually get for this year and it will shows up in SOPOL. So you subtract b/d arrears and add c/d arrears to total cash received. By doing this you can get the rent received for the year in SOPOL.
R
Rashi·
thankyou this really helped
A
assia·
thank you so much, this helped me understand both questions four and five
J
Jazan·
For Question 4: why is prepayment 3/4 x 28,800 and Expense (3/4 x 25,920 + 1/4x 28,800) and not Prepayment (1/4 x 28,000)0 and Expense (1/4x25,920 +3/4 x 28,800)?
J
John MoffatTutor·
The payment of 28,800 is for the period 1 April 2008 to 31 March 2009.
The year end is 30 June 2008, and so the period from 1 April 2008 to 30 June 2008 (i.e. 1/4) is an expense of the year, and the period 1 July 2007 to 31 March 2009 (i.e. 9/23) is prepaid.
J
Jazan·
Thank you. I totally left out the year ended 30 June, 2008
S
Study·
Can this perhaps be clarified and explained in more detail since I cannot understand the calculation presented.
Here's how I did my calculation:
9/12 x 25920 + 3/12 x 28800 = 26640.
1 July 2008 - 30 June 2008
T
Tsotang·
how did you get 38 400 prepaid from question 2?
J
John MoffatTutor·
The year ends on 30 April 2009, and the latest payment before that date was on 1 April 2009. Because they are paying in advance, this was for the three months April, May, and June.
So May and June have been prepared - 2 months, and since it is at the higher rent charge the prepaid amount is 2/12 x 230,400 = $38,400.
F
Fidan·
Hi,
Could you please explain Q4, why do we do 1/4 or 3/4 specifically as there is no info about quarterly payments?
M
mISHANI·
hi, I would like to second this question, not sure why we do 1/4 or 3/4 no info on quarters
J
John MoffatTutor·
Of course they are not quarterly payments - the question says they are paid yearly!
The year end of the business is 30 June. The premium is for the the 12 months to 31 March. From 31 March to 30 June is 3 months, and 3 months is 1/4 of a year.
F
Faizan·
why is the word rent receivable is used in the requirements why not rental income because Rent receivable is shown in balance sheet
J
John MoffatTutor·
Although you are strictly correct as regard the wording, I am afraid that the rental income in the SOPL is commonly referred to as rent receivable (both in exams and in 'real life'. The fact that the question asks for what is in the SOPL is just confirming that.
F
Faizan·
can someone explain this question 5 to me in detail?
J
John MoffatTutor·
They are receiving rent. The cash received during the year was 2,003,040.
11,520 of the cash was rent they were owed at the start of the year, so subtract it. At the end of the year they are owed 20,880, so add it.
At the start of the year they had received 323,040 in advance – this is this years income so add it. At the end of the year they had received 346,560 in advance – this is next years income so subtract it ?
F
Faizan·
My point is that they are receiving rent in cash as advance 323040 was received in the form of cash at 30th June 2005, so we have to add it back 2003040 which they received on 30 June 2006, since he is saying received in advance on 30th June 2005. On top of that 11520 was outstanding as receivable hence shouldn't it be included in 2003040 and 20880 should be excluded.
M
Michelle·
Thanks, I struggled with this question because I didn't know where the cash received figure came from and if it already included the items listed. If I see a question like this again I will not worry and simply apply the methodology you have explained. Or am I missing something?
P
Polvon·
This made it clear, thanks
G
Gift·
The workings are very explanatory. l have also noted that paying attention to dates is the key to passing.
J
John MoffatTutor·
That is very true :-)
U
Ugochi·
Hi, thank you for the lectures, although I am a bit confused in question 1,
why didn't we treat the loan as a liability? Because as at 31 December 2008, the loan had not yet been paid to us
J
John MoffatTutor·
The business lent the money to an employee and so the business is owed money from the employee and is therefore an asset (a receivable) not a liability.
N
Nam Anh·
In the first example, it's said that the company has paid insurance in 2008, covering the year ending 31 Aug 20X9. Does we automatically understand that they paid the insurance at the end of the financial year which is at 31 Aug 20X8?
J
John MoffatTutor·
The financial year doesn't end on 31 August 2008. It ends on 31 December according to the last line of the question!!
G
GARRY·
thanks
S
Syed Daniyal·
Got 100% result :)
S
Somuto·
Hello John
What is the reasoning behind the calculation of the yearly balances in the SOPL for 2 of these practice questions showing rent in advance and rent in arrears?
J
John MoffatTutor·
Because it they are still owed rent then it is income of the year. If they have received rent in advance then it is not income for the current year.
We need to calculate the rent actually earned during the year, not just the cash received. (Just as with expenses we need to calculate the expense incurred during the year, not the cash actually paid.)
M
mrx1·
sir in prepaid part of q2 why are multiplying 230400 in prepaid amount, why dont we multiply 210600 that was their regular payment since there?
J
John MoffatTutor·
230,400 was the cost for the period from 1 July 2008 to 30 June 2009.
We are after the cost for the year to 30 April 2009, and 1 July 2008 to 30 April 2009 is part of the period for which they paid 230,400.
K
KOUKPONOU·
sir please help me with question 3 . i do not understand why the porata
J
John MoffatTutor·
We need the expense for the period 1 Jan 2006 to 31 Dec 2006.
The bill for the quarter to 28 Feb is for Dec 2005, Jan 2006, and Feb 2006. Only 2 of those months are part of the period we are looking at and so 2/3 x 798 = 532 is the expense for the first 2 months of our year.
The bill for the quarter to 28 Feb 2007 is for Dec 2006, Jan 2007, and Feb 2007. Only 1 of those months is part of the period we are looking at and so 1/3 x 966 = 322 is the expense for the last month of our year.
These two figures plus the bills for all the months in between gives the total expense for the year.
T
Ting·
Hi in Q1, why the cash was not considered in the calculation of current assets (e.g. made a loan means - 28,800 cash; and paid insurance means - 21,600 cash)? Thank you
J
John MoffatTutor·
The question only asks for the total for the items listed. (And we do not know what the cash balance will be anyway because there will have presumably have been lots of other transactions involving cash.)
M
Munashe·
Sir I didn't even understand question 3. Can you please please assist me
J
John MoffatTutor·
We are calculating the total expense fr the 12 months ending on 31 December 2006. You will have to say which bit of the answer that is provided you are not clear about.
C
Chiluba·
Please explain question4
J
John MoffatTutor·
You can see the workings for the answer if you click on 'review quiz' after submitting your answers.
M
Munashe·
Sir I didn't even understand question 3. Can you please please assist me
J
John MoffatTutor·
You can see the workings for the answer if you click on ‘review quiz’ after submitting your answers.
(I assume that you did watch the free lectures before attempting the test?)
T
Taruna·
Hello Sir,
For question 5, could you briefly explain how to get to the answer.
J
John MoffatTutor·
They are receiving rent. The cash received during the year was 2,003,040.
11,520 of the cash was rent they were owed at the start of the year, so subtract it. At the end of the year they are owed 20,880, so add it.
At the start of the year they had received 323,040 in advance – this is this years income so add it. At the end of the year they had received 346,560 in advance – this is next years income so subtract it :-)
A
Abdul·
Sir please explain question 3 and 4
J
John MoffatTutor·
Have you clicked on 'review quiz' after submitting your answer, because the workings for the answer will then appear :-)
R
riannarose32·
For Q1... Why is the $29,376 be included in the SOFP ending Dec 2008, when the loan is going to be repaid in the following financial year?
J
John MoffatTutor·
Because we are owed the money as at 31 December 2008, so it is a receivable.
H
Hermela·
Hello sir how are you? Thanks to all lecture.
?n question number6 what 1154880 does represent ? ? thought it is total recievable but if it is why we add 68880 and 44160 if it is included on 1154880
J
John MoffatTutor·
It is the total cash received. So we need to adjust it for the rent over or under paid at the start and end of the year to get the total rental income for the year.
M
Mariama·
*Good evening sir, question number 4 why did say 3÷4×25920+1÷4×28800
And also for the prepayment why did we say 3÷4×28800
M
Mariama·
*and question number 5 also m a bit lost
J
John MoffatTutor·
Because the year end is 30 June but the payments were for 12 months ending on 13 March. So ro months of the first payment and 9/12 of the second payment are in our year. 3/12 = 1/4, and 9/12 = 3/4
J
John MoffatTutor·
It certainly can be tested in the exam, but it is not in the lectures because the logic is identical to the logic behind accrued and prepaid expenses :-)
M
Michal·
Just one question have crossed my mind.
In this chapter Accrual income and Prepaid income was not covered. Is it going to be covered in future lectures, or it was not covered because we are not going to be tested on it during the exam?
M
Michal·
Hello Sir,
I have difficulties understanding question where we had to calculate total amount appearing in SoFP for December 2008, exactly point (2).
The company has paid insurance and I thought that part (8/12) x 21600 = 14400 will be an expense appearing in SOPL and what's left over; (4/12) x 21600 = 7200 is a prepayment, an asset that will be included in SoFP, but it turned out that amount 14400 goes to SoFP and I cannot understand why.
Any help would be greatly appreciated.
J
John MoffatTutor·
As at 31 December 2008 they have prepaid for the period from 1 January 2009 to 31 August 2009.
Therefore the amount for this period (8/12 x 21600) is a prepayment as at 31 December 2008 and is not an expense for the year to 31 December 2008.
M
Michal·
It is making it all clear now.
Thank you for taking your time explaining it.
J
John MoffatTutor·
You are welcome :-)
S
sonali·
Im having difficulty in understanding question 2. can you explain it to me?
J
Jabedul Islam·
Will you give me the FA1 chapter 4 lecture sir,please?
J
John MoffatTutor·
We do not have lectures for Paper FA1, only free notes.
We do have free lectures for Paper FA and you can find them by going to the main Paper FA page.
K
KateSupporter·
Kindly explain question 5 and 6.
T
Tinomudaishe·
Had a hundred percent score, felt like i had passed the exam already?? Realised a few things as i was going through the quiz:
1. GO THROUGH THE QUESTIONS WORD BY WORD, DO NOT RUSH AND PAY ATTENTION TO EVERY DETAIL
2. DO NOT MAKE ANY ASSUMPTIONS APPROACH THE QUESTION AS IT IS
3. TAKE NOTE OF THE DATES
T
TANYA·
dear sir, in question 3, a monthly telephone bill can differ in amount in each month. i don't get the logic of 1/3rd-ing it to find the bill amount of a particular month.
should we record the transaction, the day the bill it is recieved or the same it is paid, or both?
J
John MoffatTutor·
If bills are only received every three months (as they are in this example) then it will be impossible to know how much it cost for each individual month. All we can do is estimate and therefore divide by 3.
As explained in the free lectures, the invoice is recorded when it is received. The payment is recorded when it is paid.
K
Kristuna·
Q1- Regarding the amount 28,800 (loan to employee) - why should the amount be included in the SOFP as a current asset as the net effect is zero? I understand that this is a receivable but in the same year we gave the loan so the cash has decreased for the same amount. The net effect is zero (receivable increased but also cash decreased for the same amonut)
J
John MoffatTutor·
The question asks what would be shown in the SOFP for the items listed, and the receivable for the loan will be shown. It does not ask what the cash balance will be, and we have no idea what it will be - there will be lots of cash transactions that we do not know about. (And we do not net items off anyway :-) )
C
Carine Echeng·
Hello Sir, the lectures are very explicit. Thank you so much.
Why is interest on loan not considered as an income but an asset? ( On question 1)
J
John MoffatTutor·
It is income, but is also an asset at the year end because the year end is 31 December, but the interest is not received until 1 January.
E
Ewa·
Hello
Its clear for now. Thank you very much for answer.
J
John MoffatTutor·
You are welcome.
E
Ewa·
Hello
In question 3 why we have 2/3 and 1/3? I try to find the correct answer but I can't get 3 (its from ?) I thought that should be 2/4 and 1/4 as an April is second quarter and March its a first quarter.
Thank you for help.
J
John MoffatTutor·
Each bill is for a 3 month period.
The bill for the quarter to 28 February is for the three months December, January, and February.
So the amount we need to accrue for the month of December is 1/3 of the total bill for the three months.
E
EDWIN·
How different is Rent in advance and Rent in arrears from rent prepaid and rent accrued respectively ?
J
John MoffatTutor·
If it is rent payable then rent in advance is indeed rent prepaid and rent in arrears is a rent accrual.
However if is is rent receivable, then rent received in advance is treated like an accrual (the renter has paid too much and so it is owed back) and rent received in arrears is treated like a prepayment (the renter has not paid enough and so owes us money).
N
Nguyen·
Hello Sir,
Can you explain further the equation in question 6, please? Thank you very much.
N
Nguyen·
Nevermind, I found your explanation in the older comment. Thanks for your help.
A
Ashley·
Hello
Just on question 1, it says that the company has paid insurance totaling $21,600 in 2008, covering the year ended 31 August 2009.
Surely that would mean that the amount of $21,600 would need to be divided by 20 months (the whole of 2008 plus the 8 months in 2009) which would leave a total of 1080 a month times by 8 leaving a prepayment asset of $8,640...........
Am I missing something?
Thanks
J
John MoffatTutor·
The question says that the $21,600 is covering the year ended 31 August 2009. It is therefore for the year (12 months) from 1 September 2008 to 31 August 2009.
S
Star believer·
The question asks what should appear in the SFP ending 31 Dec 2008. Since the 21600 is covering 12 months, should we not focus on the months from Sept to December 2008, which are within its financial year? I don't understand where the 8 months is coming from. kindly assist
J
John MoffatTutor·
No. In the SOFP we show the amount that is prepaid as at 31 December 2008.
H
Hinthu·
Quetion 1:
If we write t accounts for the transcactions in question 1, cash t account shows credit balance of $50,400. Will not it be listed in the SOFP as current liability?
J
John MoffatTutor·
The questions asks only in relation to "these items" and cash is not listed as one of the items. In addition, there will certainly have been lots of other cash transactions and so it is not possible to know what the closing balance of cash will be.
H
Hinthu·
Thank you sir
J
John MoffatTutor·
You are welcome :-)
P
Puseletso·
Sir may I please sak why on the first question the 9600 was taken as the current asset even though it was paid in January *2009* for the six months *to* December *2008*
I thought I should be treated as a current liability because it was owed to the business from July 2009-December 2008 as it was only paid in January 2009
P
Puseletso·
Sir may I please ask why on the first question the 9600 was taken as the current asset even though it was paid in January *2009* for the six months *to* December *2008*
I thought It should be treated as a current liability because it was owed to the business from July 2008-December 2008 as it was only paid in January 2009
P
Puseletso·
I am sorry this question has too many typos. I reposted the correct one
P
Puseletso·
Thank you now I understand... I mistakenly took the rent as an expense not income... Which is wrong
P
Puseletso·
Now I understand.. I mistakenly took rent as an expense not income... Which is wrong
J
John MoffatTutor·
That is correct :-)
J
John MoffatTutor·
The business earned the rent in 2008 but the tenant didn't pay the business until Hanuray 2009.
So at the end of 2008 the business was owed the money from the tenant, so it is a current asset.
M
Morgan·
this test has got me confused. clearly am not getting something right
H
Hermela·
Sir is question 3 table like structure ...my screen show me like one statement??
J
John MoffatTutor·
I am not sure what you mean. It is like a statement listing 6 invoices with the dates on which they were paid.
P
PREEYESH BEEFYE·
For question 4. How you obtained the fraction 3/4 and 1/4?
J
John MoffatTutor·
We need the expense for the period 1 July 2007 to 30 June 2008.
From 1 July 2007 to 31 March 2008 is 9 months, and so the expense is 9/12 (i.e. 3/4) of the bill for the year to 31 March 2008.
From 1 April 2008 to 30 June 2008 is 3 months, and so the expense is 3/12 (i.e. 1/4) of the bill for the year to 31 March 2009.
P
PREEYESH BEEFYE·
Thanks you Sir.
J
John MoffatTutor·
You are welcome :-)
R
Rany·
Hello, teacher
#5, why we need to subtract "Rent in arrears" for 30/Jun/2005($11,520) and add "Rent in arrears" for 30/Jun/2006($20,880) ?
J
John MoffatTutor·
Because it is rental income, and part of the cash received during the year was rent that was owing to us at the start of the year (and so is not part of this years income) and at the end of the year we are still owed rent and this is part of this years income.
R
Rany·
Thank you so much!! :-)
J
John MoffatTutor·
You are welcome :-)
M
Marta·
Hi Sir,
I have failed question 3. I understand the calculation for the correct answer, however, I don't understand why we have to assume that as of 31st December we are supposed to know the value of an invoice we will receive in March 07 (Which includes December month). In a normal circumstance wouldn't we accrue for December's charge based on the last invoice we receive in the year (840/3) ? Same at the beginning of year 07 we would have the reverse (negative accrual 739.20/3) from December 06 but is paid in March 07. Why is this not consider in this exercise for the P&L? Many thanks
J
John MoffatTutor·
As I explain in my free lectures, we make the best estimate for an accrual on the information we have.
The accounting statements will take some time to prepare, and although it is unlikely that we will have received the March invoice by the time that we finish preparing the accounts then if we do know the amount we will use it.
M
Marta·
Thank you very much
J
John MoffatTutor·
You are welcome :-)
M
Maria·
Hi,
For question 5, my understanding is that 'rent receivables' would be rent earned but not received yet which appears to be 20,880.
Please clarify. Thanks!
J
John MoffatTutor·
I know it is confusing, but the term 'rent receivable', means the rent earned during the year when it is appearing in the SOPL.
Y
yvette4111934·
two last questions are not easy to understand them
H
Harukazu·
Hi, please correct me because my understanding is wrong...
Q1
1) Dr. Loan Receivable 28,800
Cr. Cash 28,800
Dr.Interest Receivable 576
Cr. Interest income 576
2)Dr. Prepaid Insurance 21,600
Cr. Cash 21,600
Dr. Insurance expense 7,200
Cr. prepaid Insurance 7,200
3) Dr. Rent Receivable 9,600
Cr. Rent Income 9,600
Current Liability:0
Current Asset:1)+2)+3)=576-7200+9,600=16,224
I'm getting lost…
H
Harukazu·
Actually the calculation should have been 2,976.
S
shivalak·
Hi, Harukazu,
Your calc on 2) seems not correct.
2)Dr. Insurance Expense 21,600
Cr. Cash 21,600
Dr. Prepaid Insurance 14,400
Cr. Insurance Expense 14,400
1) is 28,800 + 576
2) is 14,400
3) is 9,600
And the total is 53,376.
You should simply add 28,800 up not thinking about its credit cashout.
C
Claudia·
Very good quiz! They have a mix of accruals and prepayment in the same question. Very good for practices and attention in details.
Thank you very much!
Kind Regard
Claudia Brunharo
S
syed ashraf·
can you explain question 4 i did not get it at all
J
John MoffatTutor·
We require the expense for the 12. months from 1 July 2007 to 30 June 2008.
The period 1 July 2007 to 31 March 2008 (9 months) is part of the payment made for 12 months to 31 March 2008 and so the expense for 1 July 2007 to 31 March 2008 is 9/12 x 25,920 = $19,440
The period 1 April 2008 to 30 June 2008 (3 months) is part of the payment made for 12 months to 31 March 2009 and so the expense for 1 April 2008 to 30 June 2008 is 3/12 x 28,800 = $7,200
So the total expense = 19,440 + 7,200 = $26,640.
As at 30 June 2008, they have already paid for 1 July 2008 to 31 March 2009 (9 months), and therefore there is a prepayment of 9/12 x 28,800 = $21,600.
A
Asif·
Please solve the rent questions, explaining the concept of rent arrears as well.
Why and how per each calculation step would be appreciated. These things not covered during lecture.
Also surprised no accrual questions I faced in this quiz. Mostly prepayment.
J
John MoffatTutor·
I explain what is meant by 'in arrears' and 'in advance' in the lectures.
A
Asif·
I think you explained in brief, I don’t understand when applied in the question. English is not my first language. Please do generously elaborate the solving of the answer.
J
John MoffatTutor·
In arrears means paying after you have incurred the expense (as in example 2 in my lecture), or for income receiving the cash after you earned the income.
In advance means paying before you incur the expense (as in example 1 in my lecture), or for income receiving the cash before earning the income.
The answer to question 6 is elaborated in the posts below, but here it is again:
They are receiving rent. The cash received during the year was 1,154,880.
50,880 of the cash was rent they were owed at the start of the year, so subtract it. At the end of the year they are owed 44,160, so add it.
At the start of the year they had received 68,880 in advance – this is this years income so add it. At the end of the year they had received 74,880 in advance – this is next years income so subtract it.
Therefore the income this year is 1,154,880 – 50,880 + 44,160 +68,880 – 74,880 = $1,142,160
A
Asif·
In the first question, 2% interest would be recorded as what within the SOFP, and why ?
The original loan to employee would be recorded as Accounts receivables of course if Im not mistaken.
J
John MoffatTutor·
The interest is a receivable because it is owed by the employee.
M
Mohammad Shajjad·
Thanks for the answer of 3, nice explanation. But the question is not easily understandable, not ver clear Sir
J
John MoffatTutor·
Which is the bit that is not understandable? It is actually a very old past exam question.
T
Tushar Gujral·
Good day Mr Moffat. Hope you are safe at home
Just want to know in question 1 third transaction why. We have added the 9600 as it is mentioned the amount is covering six months to 31 December 2008.
Got confused with this one.
J
John MoffatTutor·
Although it was not received until after 31 December 2008 it was income for the year ended 31 December 2008.
S
Shirley·
Good day Mr Moffat.
Question 1 (3): On 1Jan2009 company received rent from tenant $9600, covering six (6) months to 31Dec2008.
Can you brief more about this ? why answer added $9600 instead of $4800(covering 6months).
I am confused on $9600 covering 6 month to 31Dec2008.
my working: [Financial period 01Jan2008-31Dec2008]
Assume rent $9600 per year, covering 6 months ($9,600 x 6/12months = $4800). So accrual income $4800.
J
John MoffatTutor·
It covers six months and therefore it was the rent was for a six month period - not for 12 months.
S
Shirley·
Thank you very much for Mr Moffat kindnesses. I'm really like your lecture and presentation in details.
J
John MoffatTutor·
Thank you for your comment :-)
K
Kok Hue·
This is my first shot of the test,
it really stuck me and i have to write them down on paper and figure it out .
But everything just fine only Q5 and Q6 a bit confusing .
Q5 knocked me out ,
im confused the terms Rent in advance and Rent in arrears,
and also no idea how " all rent in arrears was subsequently received " affects the answer .
I thought that the money $2,003,040 received in the year ended 30 June 2006 has already included all the figure listed under Rent in advance and Rent in arrears .
After reviewing the answer,
i give it a guess :
Rent in arrears $11,520 is the money tenants owed to the landloard last year ( 2004 ),
it was deducted from $2,003,040 because this money has already included in the SOPL of June 2004 .
so, it shouldn't appear on the SOPL of June 2006
And $346,560 was deducted because it is a payment for next financial period,
it will be included in the SOPL June 2007 instead of June 2006.
simlar logic applied to the amount $20,880 .
am I right ?
J
John MoffatTutor·
Yes, you are completely correct :-)
K
Kok Hue·
So exciting !!!!!!!
I really catch up a lot from Jhon lectures ,
guess who confident now haha,
Thanks John !!!!!!!!!
J
John MoffatTutor·
You are welcome :-)
A
Arahn·
Hi John. Please could you help me with Question 4. I am not sure about the answer. I have tried different ways to get the answer but I am stuck.
A
Arahn·
I mean question 6 sorry. I am confused
J
John MoffatTutor·
They are receiving rent. The cash received during the year was 1,154,880.
50,880 of the cash was rent they were owed at the start of the year, so subtract it. At the end of the year they are owed 44,160, so add it.
At the start of the year they had received 68,880 in advance - this is this years income so add it. At the end of the year they had received 74,880 in advance - this is next years income so subtract it.
Therefore the income this year is 1,154,880 - 50,880 + 44,160 +68,880 - 74,880 = $1,142,160
A
Abdusamad·
Good day Mr Moffat !
I was confused with question 1 transaction 2 where it says the company has paid for 8 month and the answer shows that we need to multiply 21600 by 8/12, can't we just add the number itself without multiplying it by 8/12
Thank you in advance
J
John MoffatTutor·
They have paid the insurance for a year (for the period 1 September 2008 to 31 August 2009).
As at 31 December 2008 they have therefore prepaid the period from 1 January 2009 to 31 August 2009, which is 8 months of the total payment.
K
Kevinchan·
I also forgot to include the prepayment as current assets, but I wonder why the other questions don’t have to do so? As asking about what figure should be appear in company’s statement, we only need to calculate the expense included those periods of 12 months.
J
John MoffatTutor·
I don't know what other questions you are referring to. On the SOPL we show the expense incurred for the period (not the amount actually paid) and on the SOFP we show accruals (any amount still owing) and prepayments (any amount paid in advance).
Have you watched my free lectures on this?
D
dalisodaka·
Thank you very much for your work, Question 4 has given me an issue, What does it mean to say premium for the year ended 31 March 2008 paid in April 2007 $25,920.00? Does this mean the company has paid premiums for the year 2008 when they paid in April for the year 2008 or they paid in advance for the year 2009? I am confused with the question
E
Ebile·
hello sir, first i would like to thank you for contributing to develope such and amazing tutoring platform. it is very much appreciated.
With regards to question 3 sir, please what is there most time effective way of coming up with the answer. i was able to solve it but it took me so much time and given the nature of the exam, i believe time management is of great importance. Thank you
J
John MoffatTutor·
Thank you for your comment.
Certainly time management is important, so did you study the pop-up answer after you had attempted the test?
The fastest way is to take the total cash paid during the period, and then to subtract the accrual at the start of the year and add the accrual at the end of the year.
E
Ebile·
Thank you very much sir.
N
Nguyệt·
can u give me Q3? WHY 2/3*798.00???
S
shubhajitghoshal·
Year ending December 2006. So only amounts from Jan 2006-Dec 2006 will be considered. $798 corresponds to Quarter "TO" February 2006 which means it includes Dec 2005, Jan 2006 and Feb 2006. 2/3 means we are only considering 2 months of Jan and Feb out of the 3. Hope this is okay.
J
John MoffatTutor·
Correct :-)
A
Arshaque·
All the words and numbers in question 3 are mixed up because of the alignment.
A
Asif·
Make the mobile screen horizontal, it gets fixed.
F
fangs2012·
Oh my God! These questions really tested my accruals and prepayments knowledge and came through with 100% (12 points). This topic is one of the underpinning theories of accountancy and used in many accounting activities. It is a tricky area but once mastered like reporting on ratios it can be so rewarding if you want to push yourself in your career.
I am with CIMA but needed to practice questions likes these so thank Open Tuition.
M
molehin·
kindly help with Question #2.
J
John MoffatTutor·
For the SOPL we need the expense for the period 1 May 2008 to 30 April 2009.
1 May 2008 to 30 June 2008 is 2 months, so the rent for this period was 2/12 x 201,600 = 33,600.
I July 2008 to 30 April 2009 is 10 months, so the rent for this period was 10/12 x 230,400 = 192,000.
So the total expense for the year is 33,600 + 192,000 = 225,600.
For the SOFP, the last payment during the year was on 1 April 2009. Rent is paid in advance and so this payment was for April, May and June. May and June are in the next accounting period and to there is a prepayment of 2 months rent. 2/12 x 230,400 = 38,400.
my question is based on question 1 :
I am confused with transaction 2. Insurance paid for in advance is 8 months and should we not subtract that from the SOFP amount as it is not considerable for the current period ? Please help me clear my doubts ASAP
J
John MoffatTutor·
They have prepaid the insurance for the period from 1 January 2009 to 31 August 2009, which is 8 months.
The prepayment appears as a current asset in the Statement of Financial Position.
S
shagor·
Q1. 1) Why should we include 28,800 in the SOFP under current asset? Is this because cash inflow?
Q5. In the requirement it said that statement of profit and loss for rent receivable. My question is Receivable is the SOFP item why the requirement said SOPL?
J
John MoffatTutor·
1. The 28,800 was money lent to an employee, so it is a receivable which is a current asset.
2. Although I can understand it being confusing, 'rent receivable' is the name we give to the rental income and the income does appear in the SOPL
S
shagor·
Thanks a lot sir
J
John MoffatTutor·
You are welcome :-)
D
D\'andre·
Sir im having lots of trouble understanding question 3
Why is the first cash payment multiplied by 2/3 and the last one 1/3?
J
John MoffatTutor·
The bill received in March 2006 was for December 2005, January and February 2006. Only January and February are in our accounting period and so we take 2 out of the 3 months.
The bill received in March 2007 was for December 2006, January and February 2007. Only December is in our accounting period and so we take 1 out of the 3 months.
A
Asif·
In the first question, 2% interest would be recorded as what within the SOFP, and why ?
The original loan to employee would be recorded as Accounts receivables of course if Im not mistaken.
T
tanuja0309·
Hello sir concerning question 1
Will the loan given to the employee not decrease the bank balance by the same amount and thus have no overall effect on the total current assets figure?
J
John MoffatTutor·
Yes it will, but the question asks only for 'these items' and cash is not one of the items listed :-)
A
alipakdell·
thank you sir very much
J
John MoffatTutor·
You are welcome :-)
J
John MoffatTutor·
denny122:
This is rent received.
We have received cash of 2,003,040 during the year but we need the rent that was earned by us this year.
This will include the rent that was in arrears at the start of the year (i.e. was owing to us) and so this needs subtracting because it is not this years income.
It will not include the rent that had been paid to us in advance last year – this needs adding because it is income of this year.
It does include the rent paid to us in advance at the end of this year, but this is next years income and so needs subtracting. It does not include the rent in arrears at the end of this year, but this is this years income and so needs adding.
D
denny·
Hi Sir,
Do you mind explaining question 5?
Thank you :)
J
John MoffatTutor·
jeremiha324: Thank you very much for your comment :-)
M
mykohemistone·
Sir ,
please,would u explain number 3 it is confusing me
J
jeremiah1324·
Thank you Sir for all your effort.
It has been a great help for many students around the globe.
?
C
Camille·
Hi Sir,
Question 1 (Number 3) If the year end is the 31st of December 2008 and the rent received on the beginning of the next financial year, how does becomes prepayment and not an accrual? What I clearly get from reading the question is that the rent is being owed for as at the end of the financial year.
Can you please explain this thoroughly with example if necessary?
Thank you.
J
John MoffatTutor·
It is not a prepayment. It is a receivable.
As at 31 December 2008 the company was owed rent for the 6 months to 31 December 2008, therefore there is a receivable (which is a current asset).
C
Camille·
It tricked me!! It is the tenant that owes the company the rent so it is a receivable indeed and not a payable.
Thank you so much sir. I understand now.
J
John MoffatTutor·
That's good :-)
R
Rahul Kumar·
Can you please solve this
1.The financial year of Mitex co. ended on 31 Dec. 20×1.An inventory counts on 4 January 20×2 gave a total inventory valu of $527,300.
The following transaction occured between 1 january and 4 January.
Purchase of goods $7,900
Sales of goods(Gross profit margin 40% on sales) $15,000
Goods returned by a customer $800
What inventory value should be included in Mitex Co's financial statements at 31 Dec. 20×1 ?
J
John MoffatTutor·
Please ask this sort of question in the Ask the Tutor Forum, and not as a comment on a test.
M
Missy·
Hi sir, I don't get question 3? Please explain me..even though i have watched your videos of accruals carefully yet i am being confused and couldn't solve the question.
J
John MoffatTutor·
We need to total telephone expense for the period from 1 January 2006 to 31 December 2006 - the date on which the bills were actually paid.
The first payment is not relevant because it was for 3 months to 30 November 2005.
The next payment was for three months to 28 February 2006. Only 2 months are in 2006 (Jan and Feb) so we take 2/3 of the amount.
The next 3 payments are all for 2006 (they cover the period 1 March to 30 November) so we add in all of these.
The final payment is for 3 months to 28 February 2007. Only 1 month is in 2006 (Dec) and so we take 1/3 of this amount.
M
Missy·
Thankyou so much! God bless you :) Seriously,prayers from the heart come. Thankyou for making things easy for us..
R
rebescosco·
Thank you so much sir, this is the question I had a problem with but now I understand. God bless you sir
J
John MoffatTutor·
You are welcome :-)
S
sarwar·
dear john,
in question 1
option 2: company has paid insurance 21,600 in 2008 ,covering the year ending august 2009.
here how many months related to 2008 ???
please explain
thanks in advance
J
John MoffatTutor·
If it is the year ended 31 August 2009, therefore it is from 1 September 2008 to 31 August 2009.
Therefore 4 months relate to 2008.
However that is of no direct relevance to the question. The question asks for the amount to appear on the SOFP, so what is relevant is the fact that 8 months (1 January 2009 to 31 August 2009) have been prepaid - therefore a prepayment, i.e. a current asset on the SOFP at 31 December 2008.
(Have you watched the free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.)
S
sarwar·
thanks a lot dear john for your reply..i misunderstood the question
J
John MoffatTutor·
You are welcome :-)
L
Leo·
Mr. John, could you tell me why we didn't include cash spending to calculation of current asset in Q1?
Thanks in advance.
J
John MoffatTutor·
We do not know all the cash transactions during the year, so we cannot calculate a cash balance.
Also, the question only asks for 'these items' i.e. only the items listed.
L
Leo·
If we could calculate a cash account for a year, and it was a credit balance, would it have decreased current assets account?
J
John MoffatTutor·
There is no such thing as a 'current assets account'. If there was a credit balance at the end of the year then it would mean that there was an overdraft, which is a current liability.
J
jinjina2017·
I think sir question 4 is miscalculated. Please check the way question is rising isnt matching with the answer. Thanks
J
John MoffatTutor·
I have checked, and the answer is completely correct :-)
See my answer to the question below!
S
stormandsilence·
Please explain question 4
J
John MoffatTutor·
For the SOPL, we need the expense for the period 1 July 2007 to 30 June 2008.
For 1 July 2007 to 31 March 2008, this is 9 months out of a 12 month bill to 31 March 2008 for $25,920
For 1 April 2008 to 30 June 2008, this is 3 months out of a 12 month bill to 31 March 2009 for $28,800.
Therefore the total expense = (9/12 x 25920) + (3/12 x 28800) = $26,640.
For the SOFP, the prepayment is the period from 2 July 2008 to 31 March 2009, which is 9 months out of a 12 month bill for 28,800.
So the amount of the prepayment is 9/12 x 28800 = $21,600
A
Abdi·
Rent in arrears in 2007 was $50880 why did we subtract and not add sir? (question No 6)
J
John MoffatTutor·
It is rent received and this is rent that was owing to us from last year (and so was last years income) but the cash was received this year. It is not this years rent so it needs subtracting from the cash received this year.
H
Hieu·
I have another question:
The electricity account for the year ended 30 june 20X1 was as follows.
Opening balance for electricity accrued at 1 July 20X0: 300 $
Payment made during the year:
1 August 20X0 for 3 months to 31/7/20X0: 600$
1 November 20X0 for 3 months to 31/10/20X0: 720$
1 February 20X1 for 3 months to 31/1/20X1: 900$
30 June 20X1 for 3 months to 30/4/20X1: 840$
1 August 20X1 for 3 months to 31/7/20X1: 840$
Caculate the amount of accrued at 30/6/20X1 and charge to SPL year ended 30/6/20X1 ?
Thank you Sir :D
J
John MoffatTutor·
You must ask this sort of question in the Ask the Tutor Forum and not as a comment on a test.
C
criimia·
Hi John,
I am having a bit of a hard time with the rent expense in Q2. Whilst I got it right, I had a doubt that 1Apr09 - 31Apr 09 isn't included in the final rent expense amount. Shouldn't be Apr-May 08 : 33600 + June 08: 19200 + period covering July 08 - 31 March 09: 57000*3 + additional 19200 for full April 2009?
Thank you for your help
C
criimia·
Never mind :D I counted an additional month in a year
Y
yavistee·
I cannot understand why the insurance is accrued and how this figure has been gained.
J
John MoffatTutor·
Which question are you referring to? You have posted under a question about Q2, but there is no insurance in Q2 :-)
A
adonis·
Mr.John,could you explain why the accrual (quest.1) ($ 9600) wad added in $ 53376 ?I suppose that you reverse the transaction ? Thank you and regards
J
John MoffatTutor·
The business is owed interest by the employee and this is therefore a current asset.
A
abdikani·
sir for q5 or other questions I have seen how do I now the year which is relevant and which is not in this question it was required and asked 2006 and you add 2005 transactions. thanks
M
muhammed·
Sir, could you please explain question 5 please?
J
John MoffatTutor·
This is rent received.
We have received cash of 2,003,040 during the year but we need the rent that was earned by us this year.
This will include the rent that was in arrears at the start of the year (i.e. was owing to us) and so this needs subtracting because it is not this years income.
It will not include the rent that had been paid to us in advance last year - this needs adding because it is income of this year.
It does include the rent paid to us in advance at the end of this year, but this is next years income and so needs subtracting. It does not include the rent in arrears at the end of this year, but this is this years income and so needs adding.
H
Hieu·
Sir, can u explain this question by T account please ?
J
John MoffatTutor·
Debit the rent received account with the rent that was in arrears at the start of the year.
Credit the rent received account with the rent that has been paid in advance at the start of the year.
Credit the rent received account with the cash received during the year.
Debit the rent received account with the rent that had been paid in advance at the end of the year.
Credit the rent received account with the rent that was in arrears at the end of the year.
The missing figure on the account is the rental income for the year.
T
Tushar Gujral·
sir why the rent in arrears of previous are deducted. i didn't get that please explain
J
John MoffatTutor·
Part of the rent received this year was owing to us at the end of last year. Therefore it was income for last year and not part of this years income.
It was a debit balance at the start of the year because it was rent that was owing to us from the previous year.
H
hammad asif·
Sir can you explain question number 3?
J
John MoffatTutor·
The first bill is not relevant because is is for 3 months to 30 November 2005.
Of the second bill, 2 months - January and February - are relevant, so 2/3 of 798.
The whole of the third bill is relevant - it is for March, April and May.
The whole of the fourth bill is relevant - it is for June, July and August.
The whole of the fifth bill is relevant - it is got September, October and November.
The sixth bill is for December, January and February - only December is relevant so 1/3 x 966.
N
nangula83·
Sir kindly explain to me Q3
Is the 840 paid on Jan 2007 not accrual since it is an expenditure from October to December 2006?
J
John MoffatTutor·
The question does not ask about accruals - it wants the expense for the year.
Since the 840 is the cost for the 3 months September, October and November, it is an expense of the year - when the bill is received and when the bill is paid is completely irrelevant.
N
Nguyệt·
can u give me Q3? why 2/3*798.00????
R
ruhina·
hello sir
dear sir for question number 1 the loan to employ is taken as current asset. its is because dr receivables and cr cash and this receivable is our current asset?
and for the questions 5 and 6 i am really confused that what it says and how it is calculated so if its possible please help me.
J
John MoffatTutor·
For question 1 - yes, the loan is a receivable.
Question 5 and 6 are both about rent received, which is income (not an expense).
We know how much cash was received during the year, but we need to adjust by the rent already received in advance and the rent still owing to us, in order to get the income earned during the year.
H
Honey·
Sir,
Please explain me about Q3
J
John MoffatTutor·
The first payment is for 3 months to November 2005 - they are not in our year and so are not relevant.
The second payment is for the 3 months Dec, Jan, and Feb. Only Jan and Feb are in our year, and so only 2/3 of the amount is relevant.
The next 3 payments are all for periods in our year and take us up to the end of Nov, and so they are all relevant.
The final payment is for Dec, Jan, and Feb. Only Dec is in our year and so only 1/3 of the amount is relevant.
H
Honey·
Thanks for your help sir!
J
John MoffatTutor·
You are welcome :-)
Y
yasin·
hello sir please help me with the third question.......thanks in advance.
O
oshchekhin·
Hello, John. Please, help me with the first question. Why should we include the interest of 2% of the loan to current assets?
I consider that the right answer is:
28800+(21000*8/12)+9600 = $52400 ,
because we paid the whole of the interest due on the loan (=> current liabilities= 0), and 28800$ is our cash we recieved from the bank. Therefore, current assets include cash, insuranse and rent.
Please, explain me why I am wrong/
H
hoaile1109·
not sure is this help or not but the company did not borrow money from the bank. Read the question again, it said the company made a loan for employee, hence, the interest is paid to the company :)
hope this help you :)
J
John MoffatTutor·
Vladimir: Sorry for not answering earlier but I cannot always see comments on lectures and tests. It is better to ask in the Ask the Tutor Forum - questions there are always answered within 24 hours.
Hoale is correct. The money is owed to the company by an employee and the employee also owes interest at the end of the year.
(Cash is not relevant because it is not one of the three items required, and we have no idea what the cash balance is anyway because there will be lots of other things during the year that will have affected the cash balance)
0
03081991e·
Hello John, I am not quite sure why the 28800 was included only with plus sign at the beginning of the year when the loan was given to the employee as the accounting formula should be : Loan (receivable short term/current asset) increase Debit 28800, and Cash/Bank account( current assets) given to the employee Credit 28800 so basically the impact on current assets is 0. Could you please clarify? Thanks in advance!
J
John MoffatTutor·
The question only wants to know the current assets and liabilities in relation to the items listed. Certainly cash is a current asset, but there are lots of other transactions that we do not know about that would affect the cash balance - not just the loan.
I appreciate that it is a bit confusing, but I am afraid that this was an actual exam question.
C
Cing·
Thank you sir, I got all the answer are correct. :)
J
John MoffatTutor·
Congratulations :-)
N
nifi·
Why only these six questions?
J
John MoffatTutor·
The practice tests are meant to be short tests after each chapter, and each contains 5 or 6 questions.
We also have an online mock exam where questions are taken at random from a large bank of questions (just as in the real exam) and so every time you attempt the exam you are likely to get different questions. This is to be attempted after you have watched all our free lectures because it covers the whole syllabus.
You should obviously have bought a Revision Kit from one of the ACCA approved publishers, and these contain lots of questions to practice.
A
aditimehta28·
Thank you Sir! Appreciate your help
J
John MoffatTutor·
You are welcome :-)
A
aditimehta28·
Sir, I do not understand Q 5 and 6 workings. For q 5 Why do we have to add arrears of 2006 since we have yet not received them, and should we not add arrears of 2005, since we have recieved them in 2006 which becomes our rental income? Thanks
J
John MoffatTutor·
Although we have not received the arrears of 2006, the rent was earned in 2006 and is therefore income of 2006.
Similarly although the arrears of 2005 were actually received in 2006, they were earned in 2005 and not in 2006.
We need to show the total amount earned during the year (not the cash received).
A
aditimehta28·
Thank you Sir, I understood for the arrears part. We add the arrears we have earned in the following month. However, I do not seem to understand the rent in advance. The rent in advance is the rent we have earned in 2006, so why do we subtract it. Should it not be our income?
J
John MoffatTutor·
Rent in advance at the end of the year means that although we have received the cash this year, it is rent for next year and therefore it not income of this year and needs subtracting.
A
anwarulhaq123·
sir can you please answer this question ?
The profit earned by a business in 20X7 was $72,500. The proprietor injected new capital of $8,000
during the year and withdrew goods for his private use which had cost $2,200.
If net assets at the beginning of 20X7 were $101,700, what were the closing net assets?
J
John MoffatTutor·
You must ask this sort of question in the F3 Ask the Tutor Forum.
(Although I do suggest that you watch our free lectures because this is a straightforward application of the accounting equation. Our free lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.)
A
Abdul Nishad·
Hello sir,
For both the question 5 and 6, total cash received for the year should also include the current years arrears. Then why the same is added again,
J
John MoffatTutor·
The current year arrears are money that we have earned, but we have not received the cash. The Statement of profit and loss should show the total earned, which is the cash received plus the money still owing to us.
The answers to both questions are correct.
C
Chris·
how do i watch the free lecture please?
J
John MoffatTutor·
If you go to the main page for Paper F3 you will find links to all of our free resources, including the lectures and the lecture notes that go with the lectures.
C
ctwong6·
Hi John, where can I find the written solutions to these questions? I've been watching your lectures and they are amazing, thank you very much for them and for creating such a wonderful platform.
Thanks,
Cindy
J
John MoffatTutor·
The solution to each question (and workings) appears in a pop-up window immediately you have submitted your answer.
T
to you·
Sir. I do not understand questuon 1. (3) transaction.
I thought it is current liabiliy.
It means company got the rent payment from tenant as a landlaord , so (3) is kind of unearn revenue, current liability
J
John MoffatTutor·
As 31 December 2008 they had not received the rent (it was received the next day).
However they had earned it during 2008 and therefore they were owed it - so it is a current asset.
J
Jaemin·
I dont underatnad why cash (21,600)for insurance expense is not reduced from asset in question #1 (2)
J
John MoffatTutor·
The asset is that part of the payment that is prepaid at the end of the year.
As at 31 December 2008 they have already paid for the period from 1 January 2009 up to 31 August 2009, so those 8 months are prepaid and the prepayment is the asset.
I hope that you have watched the free lecture on prepayments and accruals (otherwise there would be no point in attempting the test).
J
Jaemin·
This is how I journalized for transaction 2:
Debit: insurance (paid in 2008) 21,600
Credit:
Cash (paid in 2008) 21,600
Debit:
Pre Payment: 14,400 (8/12*21,600)
Credit:
Insurance: 14,400
Is this wrong?
J
John MoffatTutor·
That is correct, and I now realised what your problem was.
You agree (I think) that the prepayment is 14,400.
We can not include the cash balance because there are likely to have been lots of other cash transactions that we do not know about.
So all that is relevant for the question with respect of insurance is the prepayment (which is obviously a current asset).
You really should have been able to check this yourself against the working that appear after you submit your answer!
The last invoice is 966 (not 996).
A
ajlovers·
sir i have some problems in understanding question 2 can you explain it please?
J
John MoffatTutor·
You will have to say which part of the workings that appear you are not clear about.
A
ajlovers·
regarding the payment for quarters year
J
John MoffatTutor·
When they pay is not relevant for calculating the actual expense for the year - it is only relevant when calculating the prepayment for the Statement of financial position.
The year end is 30 April 2009, and so the last payment before the year end will have been on 1 April 2009. Since they are paying in advance, this payment will have been for April, May, and June. Therefore May and June are prepaid (two months) and since the rate is 230,400 per year, the prepayment for 2 months will be 2/12 x 230,400 = 38,400.
R
Rachel·
Sir, could you please explain question 4 please?
J
John MoffatTutor·
The year end is 30 June.
From 1 July 2007 to 31 March 2008 is 9 months, and therefore the expense for this period is 9/12 x 25920 = 19440 (9/12 = 3/4)
From 1 April 2008 to 30 June 2008 is 3 months, and therefore the expense for this period is 3/12 x 28,800 = 7,200
Therefore the total expense = 19440 + 7200 = 26640
The prepayment should now make sense from the pop-up answer.
S
Sarah·
Hi John,
Regarding question 4, why are we drawing reference from 1 July 2007?
J
John MoffatTutor·
Because the year end of the business is 30 June 2008, and the year starts on 1 July 2007
S
Sarah·
thank you
J
John MoffatTutor·
You are welcome :-)
T
tabitha·
Hey John..i have not understood the answer to question three.....please help
J
John MoffatTutor·
We need the total expense for January to December.
The first bill is for three months to November of the previous year and so is not relevant.
The second bill is for three months to February. Only January and February are a cost for this year and so only 2 out of the three months is this years expense.
The final bill is for December, January and February. Only December is this year and so only 1 out of the three months is this years expense.
(I do assume that you have watched our free lectures before attempting the test.)
A
ajlovers·
sir why the first bill is irrelevant?if we consider it as an accured??
F
freyapham·
Mr. John, Can you explain the answer of this question for me. And, do we have a general formula for this type of question ?
Thank you so much :).
J
John MoffatTutor·
You do not say which question you are asking about - there are six questions in this test.
please explain anyone..
(1 Jul 2005 ~ 30 June 2006)
b/d rent in advance: xxx
(Balance at 1 Jul 2005)
c/d rent in advance: (xxx)
(Balance at 30 June 2006)
b/d rent in arrears: (xxx)
(Balance at 1 July 2005)
c/d rent in arrears: xxx
(Balance at 30 June 2006)
Previous year's ending dates become starting date for this year.
Then you get actual rent received for the year by adding and subtracting these balance to total amount.
Sorry, I'm not good at English at all. I hope my answer can help you.
please sent me an email on peyman.n1990@gmail.com
Year ended 30 June 2006 means year start is at 1 July 2005. Then c/d balance of the previous year become b/d balance for the year (balances at 30 June 2005 become b/d balances at 1 July 2005)
Question 4 states total cash received in the year is 2,003,040 ( total of advance and arrears). Rent received in advance for previous year is the rent we actually get for this year ( b/d rent received in advance 323,040) and rent received in advance during this year mean we already get the money for next year it also means this money do not have anything to do with this year's SOPOL (c/d rent received in advance 346,560). Then you add the b/d balance to total cash and subtract the c/d balance.
For the arrears, rent received in arrears from previous year means late payment from previous year it has nothing to with this year's SOPOL. ( arrears at 30 June 2005 become b/d balance for this year) then arrears at 30 June 2006 become c/d balance this is the money we actually get for this year and it will shows up in SOPOL. So you subtract b/d arrears and add c/d arrears to total cash received. By doing this you can get the rent received for the year in SOPOL.
The year end is 30 June 2008, and so the period from 1 April 2008 to 30 June 2008 (i.e. 1/4) is an expense of the year, and the period 1 July 2007 to 31 March 2009 (i.e. 9/23) is prepaid.
Here's how I did my calculation:
9/12 x 25920 + 3/12 x 28800 = 26640.
1 July 2008 - 30 June 2008
So May and June have been prepared - 2 months, and since it is at the higher rent charge the prepaid amount is 2/12 x 230,400 = $38,400.
Could you please explain Q4, why do we do 1/4 or 3/4 specifically as there is no info about quarterly payments?
The year end of the business is 30 June. The premium is for the the 12 months to 31 March. From 31 March to 30 June is 3 months, and 3 months is 1/4 of a year.
11,520 of the cash was rent they were owed at the start of the year, so subtract it. At the end of the year they are owed 20,880, so add it.
At the start of the year they had received 323,040 in advance – this is this years income so add it. At the end of the year they had received 346,560 in advance – this is next years income so subtract it ?
why didn't we treat the loan as a liability? Because as at 31 December 2008, the loan had not yet been paid to us
What is the reasoning behind the calculation of the yearly balances in the SOPL for 2 of these practice questions showing rent in advance and rent in arrears?
We need to calculate the rent actually earned during the year, not just the cash received. (Just as with expenses we need to calculate the expense incurred during the year, not the cash actually paid.)
We are after the cost for the year to 30 April 2009, and 1 July 2008 to 30 April 2009 is part of the period for which they paid 230,400.
The bill for the quarter to 28 Feb is for Dec 2005, Jan 2006, and Feb 2006. Only 2 of those months are part of the period we are looking at and so 2/3 x 798 = 532 is the expense for the first 2 months of our year.
The bill for the quarter to 28 Feb 2007 is for Dec 2006, Jan 2007, and Feb 2007. Only 1 of those months is part of the period we are looking at and so 1/3 x 966 = 322 is the expense for the last month of our year.
These two figures plus the bills for all the months in between gives the total expense for the year.
(I assume that you did watch the free lectures before attempting the test?)
For question 5, could you briefly explain how to get to the answer.
11,520 of the cash was rent they were owed at the start of the year, so subtract it. At the end of the year they are owed 20,880, so add it.
At the start of the year they had received 323,040 in advance – this is this years income so add it. At the end of the year they had received 346,560 in advance – this is next years income so subtract it :-)
?n question number6 what 1154880 does represent ? ? thought it is total recievable but if it is why we add 68880 and 44160 if it is included on 1154880
And also for the prepayment why did we say 3÷4×28800
In this chapter Accrual income and Prepaid income was not covered. Is it going to be covered in future lectures, or it was not covered because we are not going to be tested on it during the exam?
I have difficulties understanding question where we had to calculate total amount appearing in SoFP for December 2008, exactly point (2).
The company has paid insurance and I thought that part (8/12) x 21600 = 14400 will be an expense appearing in SOPL and what's left over; (4/12) x 21600 = 7200 is a prepayment, an asset that will be included in SoFP, but it turned out that amount 14400 goes to SoFP and I cannot understand why.
Any help would be greatly appreciated.
Therefore the amount for this period (8/12 x 21600) is a prepayment as at 31 December 2008 and is not an expense for the year to 31 December 2008.
Thank you for taking your time explaining it.
We do have free lectures for Paper FA and you can find them by going to the main Paper FA page.
1. GO THROUGH THE QUESTIONS WORD BY WORD, DO NOT RUSH AND PAY ATTENTION TO EVERY DETAIL
2. DO NOT MAKE ANY ASSUMPTIONS APPROACH THE QUESTION AS IT IS
3. TAKE NOTE OF THE DATES
should we record the transaction, the day the bill it is recieved or the same it is paid, or both?
As explained in the free lectures, the invoice is recorded when it is received. The payment is recorded when it is paid.
Why is interest on loan not considered as an income but an asset? ( On question 1)
Its clear for now. Thank you very much for answer.
In question 3 why we have 2/3 and 1/3? I try to find the correct answer but I can't get 3 (its from ?) I thought that should be 2/4 and 1/4 as an April is second quarter and March its a first quarter.
Thank you for help.
The bill for the quarter to 28 February is for the three months December, January, and February.
So the amount we need to accrue for the month of December is 1/3 of the total bill for the three months.
However if is is rent receivable, then rent received in advance is treated like an accrual (the renter has paid too much and so it is owed back) and rent received in arrears is treated like a prepayment (the renter has not paid enough and so owes us money).
Can you explain further the equation in question 6, please? Thank you very much.
Just on question 1, it says that the company has paid insurance totaling $21,600 in 2008, covering the year ended 31 August 2009.
Surely that would mean that the amount of $21,600 would need to be divided by 20 months (the whole of 2008 plus the 8 months in 2009) which would leave a total of 1080 a month times by 8 leaving a prepayment asset of $8,640...........
Am I missing something?
Thanks
If we write t accounts for the transcactions in question 1, cash t account shows credit balance of $50,400. Will not it be listed in the SOFP as current liability?
I thought I should be treated as a current liability because it was owed to the business from July 2009-December 2008 as it was only paid in January 2009
I thought It should be treated as a current liability because it was owed to the business from July 2008-December 2008 as it was only paid in January 2009
So at the end of 2008 the business was owed the money from the tenant, so it is a current asset.
From 1 July 2007 to 31 March 2008 is 9 months, and so the expense is 9/12 (i.e. 3/4) of the bill for the year to 31 March 2008.
From 1 April 2008 to 30 June 2008 is 3 months, and so the expense is 3/12 (i.e. 1/4) of the bill for the year to 31 March 2009.
#5, why we need to subtract "Rent in arrears" for 30/Jun/2005($11,520) and add "Rent in arrears" for 30/Jun/2006($20,880) ?
I have failed question 3. I understand the calculation for the correct answer, however, I don't understand why we have to assume that as of 31st December we are supposed to know the value of an invoice we will receive in March 07 (Which includes December month). In a normal circumstance wouldn't we accrue for December's charge based on the last invoice we receive in the year (840/3) ? Same at the beginning of year 07 we would have the reverse (negative accrual 739.20/3) from December 06 but is paid in March 07. Why is this not consider in this exercise for the P&L? Many thanks
The accounting statements will take some time to prepare, and although it is unlikely that we will have received the March invoice by the time that we finish preparing the accounts then if we do know the amount we will use it.
For question 5, my understanding is that 'rent receivables' would be rent earned but not received yet which appears to be 20,880.
Please clarify. Thanks!
Q1
1) Dr. Loan Receivable 28,800
Cr. Cash 28,800
Dr.Interest Receivable 576
Cr. Interest income 576
2)Dr. Prepaid Insurance 21,600
Cr. Cash 21,600
Dr. Insurance expense 7,200
Cr. prepaid Insurance 7,200
3) Dr. Rent Receivable 9,600
Cr. Rent Income 9,600
Current Liability:0
Current Asset:1)+2)+3)=576-7200+9,600=16,224
I'm getting lost…
Your calc on 2) seems not correct.
2)Dr. Insurance Expense 21,600
Cr. Cash 21,600
Dr. Prepaid Insurance 14,400
Cr. Insurance Expense 14,400
1) is 28,800 + 576
2) is 14,400
3) is 9,600
And the total is 53,376.
You should simply add 28,800 up not thinking about its credit cashout.
Thank you very much!
Kind Regard
Claudia Brunharo
The period 1 July 2007 to 31 March 2008 (9 months) is part of the payment made for 12 months to 31 March 2008 and so the expense for 1 July 2007 to 31 March 2008 is 9/12 x 25,920 = $19,440
The period 1 April 2008 to 30 June 2008 (3 months) is part of the payment made for 12 months to 31 March 2009 and so the expense for 1 April 2008 to 30 June 2008 is 3/12 x 28,800 = $7,200
So the total expense = 19,440 + 7,200 = $26,640.
As at 30 June 2008, they have already paid for 1 July 2008 to 31 March 2009 (9 months), and therefore there is a prepayment of 9/12 x 28,800 = $21,600.
Why and how per each calculation step would be appreciated. These things not covered during lecture.
Also surprised no accrual questions I faced in this quiz. Mostly prepayment.
In advance means paying before you incur the expense (as in example 1 in my lecture), or for income receiving the cash before earning the income.
The answer to question 6 is elaborated in the posts below, but here it is again:
They are receiving rent. The cash received during the year was 1,154,880.
50,880 of the cash was rent they were owed at the start of the year, so subtract it. At the end of the year they are owed 44,160, so add it.
At the start of the year they had received 68,880 in advance – this is this years income so add it. At the end of the year they had received 74,880 in advance – this is next years income so subtract it.
Therefore the income this year is 1,154,880 – 50,880 + 44,160 +68,880 – 74,880 = $1,142,160
The original loan to employee would be recorded as Accounts receivables of course if Im not mistaken.
Just want to know in question 1 third transaction why. We have added the 9600 as it is mentioned the amount is covering six months to 31 December 2008.
Got confused with this one.
Question 1 (3): On 1Jan2009 company received rent from tenant $9600, covering six (6) months to 31Dec2008.
Can you brief more about this ? why answer added $9600 instead of $4800(covering 6months).
I am confused on $9600 covering 6 month to 31Dec2008.
my working: [Financial period 01Jan2008-31Dec2008]
Assume rent $9600 per year, covering 6 months ($9,600 x 6/12months = $4800). So accrual income $4800.
it really stuck me and i have to write them down on paper and figure it out .
But everything just fine only Q5 and Q6 a bit confusing .
Q5 knocked me out ,
im confused the terms Rent in advance and Rent in arrears,
and also no idea how " all rent in arrears was subsequently received " affects the answer .
I thought that the money $2,003,040 received in the year ended 30 June 2006 has already included all the figure listed under Rent in advance and Rent in arrears .
After reviewing the answer,
i give it a guess :
Rent in arrears $11,520 is the money tenants owed to the landloard last year ( 2004 ),
it was deducted from $2,003,040 because this money has already included in the SOPL of June 2004 .
so, it shouldn't appear on the SOPL of June 2006
And $346,560 was deducted because it is a payment for next financial period,
it will be included in the SOPL June 2007 instead of June 2006.
simlar logic applied to the amount $20,880 .
am I right ?
I really catch up a lot from Jhon lectures ,
guess who confident now haha,
Thanks John !!!!!!!!!
50,880 of the cash was rent they were owed at the start of the year, so subtract it. At the end of the year they are owed 44,160, so add it.
At the start of the year they had received 68,880 in advance - this is this years income so add it. At the end of the year they had received 74,880 in advance - this is next years income so subtract it.
Therefore the income this year is 1,154,880 - 50,880 + 44,160 +68,880 - 74,880 = $1,142,160
I was confused with question 1 transaction 2 where it says the company has paid for 8 month and the answer shows that we need to multiply 21600 by 8/12, can't we just add the number itself without multiplying it by 8/12
Thank you in advance
As at 31 December 2008 they have therefore prepaid the period from 1 January 2009 to 31 August 2009, which is 8 months of the total payment.
Have you watched my free lectures on this?
With regards to question 3 sir, please what is there most time effective way of coming up with the answer. i was able to solve it but it took me so much time and given the nature of the exam, i believe time management is of great importance. Thank you
Certainly time management is important, so did you study the pop-up answer after you had attempted the test?
The fastest way is to take the total cash paid during the period, and then to subtract the accrual at the start of the year and add the accrual at the end of the year.
I am with CIMA but needed to practice questions likes these so thank Open Tuition.
1 May 2008 to 30 June 2008 is 2 months, so the rent for this period was 2/12 x 201,600 = 33,600.
I July 2008 to 30 April 2009 is 10 months, so the rent for this period was 10/12 x 230,400 = 192,000.
So the total expense for the year is 33,600 + 192,000 = 225,600.
For the SOFP, the last payment during the year was on 1 April 2009. Rent is paid in advance and so this payment was for April, May and June. May and June are in the next accounting period and to there is a prepayment of 2 months rent. 2/12 x 230,400 = 38,400.
answer 2: (201,600*2/12)+(230,400*10/12)=225,600
my question is based on question 1 :
I am confused with transaction 2. Insurance paid for in advance is 8 months and should we not subtract that from the SOFP amount as it is not considerable for the current period ? Please help me clear my doubts ASAP
The prepayment appears as a current asset in the Statement of Financial Position.
Q5. In the requirement it said that statement of profit and loss for rent receivable. My question is Receivable is the SOFP item why the requirement said SOPL?
2. Although I can understand it being confusing, 'rent receivable' is the name we give to the rental income and the income does appear in the SOPL
Why is the first cash payment multiplied by 2/3 and the last one 1/3?
The bill received in March 2007 was for December 2006, January and February 2007. Only December is in our accounting period and so we take 1 out of the 3 months.
The original loan to employee would be recorded as Accounts receivables of course if Im not mistaken.
Will the loan given to the employee not decrease the bank balance by the same amount and thus have no overall effect on the total current assets figure?
This is rent received.
We have received cash of 2,003,040 during the year but we need the rent that was earned by us this year.
This will include the rent that was in arrears at the start of the year (i.e. was owing to us) and so this needs subtracting because it is not this years income.
It will not include the rent that had been paid to us in advance last year – this needs adding because it is income of this year.
It does include the rent paid to us in advance at the end of this year, but this is next years income and so needs subtracting. It does not include the rent in arrears at the end of this year, but this is this years income and so needs adding.
Do you mind explaining question 5?
Thank you :)
please,would u explain number 3 it is confusing me
It has been a great help for many students around the globe.
?
Question 1 (Number 3) If the year end is the 31st of December 2008 and the rent received on the beginning of the next financial year, how does becomes prepayment and not an accrual? What I clearly get from reading the question is that the rent is being owed for as at the end of the financial year.
Can you please explain this thoroughly with example if necessary?
Thank you.
As at 31 December 2008 the company was owed rent for the 6 months to 31 December 2008, therefore there is a receivable (which is a current asset).
Thank you so much sir. I understand now.
1.The financial year of Mitex co. ended on 31 Dec. 20×1.An inventory counts on 4 January 20×2 gave a total inventory valu of $527,300.
The following transaction occured between 1 january and 4 January.
Purchase of goods $7,900
Sales of goods(Gross profit margin 40% on sales) $15,000
Goods returned by a customer $800
What inventory value should be included in Mitex Co's financial statements at 31 Dec. 20×1 ?
The first payment is not relevant because it was for 3 months to 30 November 2005.
The next payment was for three months to 28 February 2006. Only 2 months are in 2006 (Jan and Feb) so we take 2/3 of the amount.
The next 3 payments are all for 2006 (they cover the period 1 March to 30 November) so we add in all of these.
The final payment is for 3 months to 28 February 2007. Only 1 month is in 2006 (Dec) and so we take 1/3 of this amount.
in question 1
option 2: company has paid insurance 21,600 in 2008 ,covering the year ending august 2009.
here how many months related to 2008 ???
please explain
thanks in advance
Therefore 4 months relate to 2008.
However that is of no direct relevance to the question. The question asks for the amount to appear on the SOFP, so what is relevant is the fact that 8 months (1 January 2009 to 31 August 2009) have been prepaid - therefore a prepayment, i.e. a current asset on the SOFP at 31 December 2008.
(Have you watched the free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.)
Thanks in advance.
Also, the question only asks for 'these items' i.e. only the items listed.
See my answer to the question below!
For 1 July 2007 to 31 March 2008, this is 9 months out of a 12 month bill to 31 March 2008 for $25,920
For 1 April 2008 to 30 June 2008, this is 3 months out of a 12 month bill to 31 March 2009 for $28,800.
Therefore the total expense = (9/12 x 25920) + (3/12 x 28800) = $26,640.
For the SOFP, the prepayment is the period from 2 July 2008 to 31 March 2009, which is 9 months out of a 12 month bill for 28,800.
So the amount of the prepayment is 9/12 x 28800 = $21,600
The electricity account for the year ended 30 june 20X1 was as follows.
Opening balance for electricity accrued at 1 July 20X0: 300 $
Payment made during the year:
1 August 20X0 for 3 months to 31/7/20X0: 600$
1 November 20X0 for 3 months to 31/10/20X0: 720$
1 February 20X1 for 3 months to 31/1/20X1: 900$
30 June 20X1 for 3 months to 30/4/20X1: 840$
1 August 20X1 for 3 months to 31/7/20X1: 840$
Caculate the amount of accrued at 30/6/20X1 and charge to SPL year ended 30/6/20X1 ?
Thank you Sir :D
I am having a bit of a hard time with the rent expense in Q2. Whilst I got it right, I had a doubt that 1Apr09 - 31Apr 09 isn't included in the final rent expense amount. Shouldn't be Apr-May 08 : 33600 + June 08: 19200 + period covering July 08 - 31 March 09: 57000*3 + additional 19200 for full April 2009?
Thank you for your help
We have received cash of 2,003,040 during the year but we need the rent that was earned by us this year.
This will include the rent that was in arrears at the start of the year (i.e. was owing to us) and so this needs subtracting because it is not this years income.
It will not include the rent that had been paid to us in advance last year - this needs adding because it is income of this year.
It does include the rent paid to us in advance at the end of this year, but this is next years income and so needs subtracting. It does not include the rent in arrears at the end of this year, but this is this years income and so needs adding.
Credit the rent received account with the rent that has been paid in advance at the start of the year.
Credit the rent received account with the cash received during the year.
Debit the rent received account with the rent that had been paid in advance at the end of the year.
Credit the rent received account with the rent that was in arrears at the end of the year.
The missing figure on the account is the rental income for the year.
It was a debit balance at the start of the year because it was rent that was owing to us from the previous year.
Of the second bill, 2 months - January and February - are relevant, so 2/3 of 798.
The whole of the third bill is relevant - it is for March, April and May.
The whole of the fourth bill is relevant - it is for June, July and August.
The whole of the fifth bill is relevant - it is got September, October and November.
The sixth bill is for December, January and February - only December is relevant so 1/3 x 966.
Is the 840 paid on Jan 2007 not accrual since it is an expenditure from October to December 2006?
Since the 840 is the cost for the 3 months September, October and November, it is an expense of the year - when the bill is received and when the bill is paid is completely irrelevant.
dear sir for question number 1 the loan to employ is taken as current asset. its is because dr receivables and cr cash and this receivable is our current asset?
and for the questions 5 and 6 i am really confused that what it says and how it is calculated so if its possible please help me.
Question 5 and 6 are both about rent received, which is income (not an expense).
We know how much cash was received during the year, but we need to adjust by the rent already received in advance and the rent still owing to us, in order to get the income earned during the year.
Please explain me about Q3
The second payment is for the 3 months Dec, Jan, and Feb. Only Jan and Feb are in our year, and so only 2/3 of the amount is relevant.
The next 3 payments are all for periods in our year and take us up to the end of Nov, and so they are all relevant.
The final payment is for Dec, Jan, and Feb. Only Dec is in our year and so only 1/3 of the amount is relevant.
I consider that the right answer is:
28800+(21000*8/12)+9600 = $52400 ,
because we paid the whole of the interest due on the loan (=> current liabilities= 0), and 28800$ is our cash we recieved from the bank. Therefore, current assets include cash, insuranse and rent.
Please, explain me why I am wrong/
hope this help you :)
Hoale is correct. The money is owed to the company by an employee and the employee also owes interest at the end of the year.
(Cash is not relevant because it is not one of the three items required, and we have no idea what the cash balance is anyway because there will be lots of other things during the year that will have affected the cash balance)
I appreciate that it is a bit confusing, but I am afraid that this was an actual exam question.
We also have an online mock exam where questions are taken at random from a large bank of questions (just as in the real exam) and so every time you attempt the exam you are likely to get different questions. This is to be attempted after you have watched all our free lectures because it covers the whole syllabus.
You should obviously have bought a Revision Kit from one of the ACCA approved publishers, and these contain lots of questions to practice.
Similarly although the arrears of 2005 were actually received in 2006, they were earned in 2005 and not in 2006.
We need to show the total amount earned during the year (not the cash received).
The profit earned by a business in 20X7 was $72,500. The proprietor injected new capital of $8,000
during the year and withdrew goods for his private use which had cost $2,200.
If net assets at the beginning of 20X7 were $101,700, what were the closing net assets?
(Although I do suggest that you watch our free lectures because this is a straightforward application of the accounting equation. Our free lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.)
For both the question 5 and 6, total cash received for the year should also include the current years arrears. Then why the same is added again,
The answers to both questions are correct.
Thanks,
Cindy
I thought it is current liabiliy.
It means company got the rent payment from tenant as a landlaord , so (3) is kind of unearn revenue, current liability
However they had earned it during 2008 and therefore they were owed it - so it is a current asset.
As at 31 December 2008 they have already paid for the period from 1 January 2009 up to 31 August 2009, so those 8 months are prepaid and the prepayment is the asset.
I hope that you have watched the free lecture on prepayments and accruals (otherwise there would be no point in attempting the test).
Debit: insurance (paid in 2008) 21,600
Credit:
Cash (paid in 2008) 21,600
Debit:
Pre Payment: 14,400 (8/12*21,600)
Credit:
Insurance: 14,400
Is this wrong?
You agree (I think) that the prepayment is 14,400.
We can not include the cash balance because there are likely to have been lots of other cash transactions that we do not know about.
So all that is relevant for the question with respect of insurance is the prepayment (which is obviously a current asset).
please tell me where I went wrong
(2/3*798)+898.80+814.80+840+(1/3*996)
532+898.80+814.80+840+332=
3417.6
The last invoice is 966 (not 996).
The year end is 30 April 2009, and so the last payment before the year end will have been on 1 April 2009. Since they are paying in advance, this payment will have been for April, May, and June. Therefore May and June are prepaid (two months) and since the rate is 230,400 per year, the prepayment for 2 months will be 2/12 x 230,400 = 38,400.
From 1 July 2007 to 31 March 2008 is 9 months, and therefore the expense for this period is 9/12 x 25920 = 19440 (9/12 = 3/4)
From 1 April 2008 to 30 June 2008 is 3 months, and therefore the expense for this period is 3/12 x 28,800 = 7,200
Therefore the total expense = 19440 + 7200 = 26640
The prepayment should now make sense from the pop-up answer.
Regarding question 4, why are we drawing reference from 1 July 2007?
The first bill is for three months to November of the previous year and so is not relevant.
The second bill is for three months to February. Only January and February are a cost for this year and so only 2 out of the three months is this years expense.
The final bill is for December, January and February. Only December is this year and so only 1 out of the three months is this years expense.
(I do assume that you have watched our free lectures before attempting the test.)
Thank you so much :).