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Hai mr moffat.
Sir I’m kindly in need of help on this question from bbp revision kit.A company pays rent quarterly in arrears on 1 January ,1 April,1july and October each year. The rent was increased from $90,000 per year to $120,000 per year as from 1 October 20×2.
What rent expense and accruals should be included in the company’s financial statements for the year ended 31 January 20×3?We need the expense from 1 February X2 to 31 January X3.
From 1 Feb X2 to 30 Sep X2 is 8 months and so the expense is 8/12 x 90,000 = 60,000
From 1 Oct X2 to 31 Jan X3 is 4 months and so the expense is 4/12 x 120,000 = 40,000
So the total expense for the year = 40,000 + 60,000 = 100,000As at 31 January X3, the most recent payment will have been on 1 January and will have been for Oct, Nov, and Dec. Therefore they are still owing for January and so the accrual will be 1/12 x 120,000 = 10,000.
It hasn’t been excluded!
The expense is the rent from February X2 to January X3 because that is the companys financial year.
The accrual for January is because the last payment was on 1 January and they are paying in arrears.
Have you watched the free lectures on accruals and prepayments? The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
At 31 December 20X5 the following require inclusion in a company’s financial statements:
1: On 1 January 20X5 the company made a loan of $12,000 to an employee, repayable on
1 January 20X6, charging interest at 2% per year. On the due date she repaid the loan and paid
the whole of the interest due on the loan to that date.
2: The company paid an annual insurance premium of $9,000 in 20X5, covering the year ending
31 August 20X6.
3: In January 20X6 the company received rent from a tenant of $4,000 covering the six months to
31 December 20X5.
What total figures should be included in the company’s statement of financial position
as at 31 December 20X5?
B Current assets $22,240 Current liabilities $nil
C Current assets $10,240 Current liabilities $nilI am really ok with statements 2 and 3 but statement 1 seems a bit tough. i believe the answer to be C but B was recorded as one.
Could you please explain what should happen with section 1 ?Because the year end is 31 December but we will not receive the money until 1 January, the 12,000 is a current asset.
In addition there is a years interest owing to us (from 1 January to 31 December) of 2% x 12,000 = 240, and so this is a current asset also.Actually the money received from loan amount (12000) and interest (240) is also clear with me.
The issue is that we are required to find current assets and not money alone.
So when the debt is paid, shouldn’t the employee (debtor) be credited along with above entries in the cash book , thereby reducing current assets by 12000?
Your guidance please.
So 6000+4000=10000 for sections 2 and 3.
Then 12000+240 for loan payback and interest respectively =12240
Then 12000 for crediting an employee (debtor).
Finally we have
10000+12240-12000=10, 240 on current assetsThe question cannot expect you to include cash in the current assets because there will have been lots of other effects on cash that we are not told about – so we do not know what the cash balance will be.
That is why the question just refers to how the ‘following’ will be included.The wording may seem a bit confusing, but it was an actual exam question.
Thought it was money that the employee paid back inclusive of both loan itself as well as interest.
My question is : Why don’t we have to take the decrease in debtor’s amount into account ?
Journal entries are
Dr Cash. 12240
Cr Debtor. 12000
Cr Interest received 240
Then why do we leave alone the Debtor’s amount ?
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