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10.1 BPP (IS THERE LECTURE OR EXPLANATIONS FOR THE BPP BOOKS EXERCISES ??)
A company receives rent for subletting part of its office block.
Rent, receivable quarterly in advance, is received as follows:
Date of receipt Period covered $
1 October 2001 3 months to 31 December 2001 7,500-
30 December 2001 31 March 2002 7,500
4 April 2002 30 June 2002 9,000
1 July 2002 30 September 2002 9,000
1 October 2002 31 December 2002 9,000
What figures, based on these receipts, should appear in the company’s financial statements for the year ended
30 November 2002?
Income statement Balance sheet
A $34,000 Debit Prepayment (Dr) $3,000
B $34,500 Credit Accrual (Cr) $6,000
C $34,000 Credit Accrual (Cr) $3,000
D $34,000 Credit Prepayment (Dr) $3,000Dear Sir,
Kindly explain for me why it is 2500 the first quarter as Nov and Dec are in the relevant year ? So why we put 2500 in the addition of 7500+9000+9000+6000 and not 5000 ?? and why it is 3000 In Advance.Always Best Regards
Firstly, we are not connected to BPP and therefore certainly do not have lectures working through their examples!!!
As far as this question is concerned, the company’s year runs from 1 December 2001 to 30 November 2002.
Therefore only December 2001 is part of the year – 1/3 x 7500.
With regard to the payment in advance, the last payment during the year was 9,000 and this was for October, November and December of 2002. The company’s year ends on 30 November and so only December is a prepayment and is 1/3 of the total payment of 9,000.I assume that you have watched my free lectures on this. The lectures are a complete free course for Paper F3 and cover everything need to be able to pass the exam well.
Yes Sir,
i have seen the lectures of Chap 4/F3 ;but i get always suspicious because of the limit of the year, i mean which is IN prepayment and which is Out .Before the relevant year the month before is considered what , as here is December :2001 ?? Is this considered a prepayment ?I am always thankful to you.
I don’t know what you mean by IN and OUT !!!
The last receipt before the year end of 30 November 2002, was the receipt of 9,000 at the beginning of October 2002.
Since that was for 3 months to December, the person has prepaid to us for December – so 1 month out of 3 months means that they have prepaid to us 3,000.Since it is prepaid income, it will be shown as a current liability on our SOFP.
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