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FA Chapter 4 Questions Accruals and Prepayments

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  2. 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..

  3. 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.

    • 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.

    • 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.

    • 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?

    • 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.

    • 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.

      • 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

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