FA Chapter 4 Questions Accruals and Prepayments
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how did you get 38 400 prepaid from question 2?
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.
Hi,
Could you please explain Q4, why do we do 1/4 or 3/4 specifically as there is no info about quarterly payments?
hi, I would like to second this question, not sure why we do 1/4 or 3/4 no info on quarters
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.
why is the word rent receivable is used in the requirements why not rental income because Rent receivable is shown in balance sheet
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.
can someone explain this question 5 to me in detail?
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 ?
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.
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?
This made it clear, thanks
The workings are very explanatory. l have also noted that paying attention to dates is the key to passing.
That is very true 🙂
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
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.
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?
The financial year doesn’t end on 31 August 2008. It ends on 31 December according to the last line of the question!!
thanks
Got 100% result 🙂
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?
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.)
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?
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.
sir please help me with question 3 . i do not understand why the porata
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.
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
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.)
Sir I didn’t even understand question 3. Can you please please assist me
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.
Please explain question4
You can see the workings for the answer if you click on ‘review quiz’ after submitting your answers.
Sir I didn’t even understand question 3. Can you please please assist me
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?)
Hello Sir,
For question 5, could you briefly explain how to get to the answer.
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 🙂
Sir please explain question 3 and 4
Have you clicked on ‘review quiz’ after submitting your answer, because the workings for the answer will then appear 🙂
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?
Because we are owed the money as at 31 December 2008, so it is a receivable.
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
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.
*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
*and question number 5 also m a bit lost
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
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 🙂
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?