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At 31 December 2003, Tony had accrued $240 in respect of light and heat
for the quarter ending 31 December 20X3. In January 2004 he discovered
that he had under-accrued by $10.
The bills for the next four quarters were as follows (q.e. = quarter ended):
Amount Relating to Data paid
$260 q.e. 31 March 20X4 15 April 20X4
$220 q.e. 30 June 20X4 17 July 20X4
$210 q.e. 30 September 20X4 14 October 20X4
$230 q.e. 31 December 20X4 19 January 20X5
Tony always accrues for expenses based on the last bill.
What was the charge to the statement of profit or loss in respect of
light and heat for the 15-month accounting period ended 31 March
20X5?
$________This question is from the Kaplan study text. The answer is $1160. I didn’t understand the under accrual part. Can you please explain ?
We need the total expense for the period 1 January X4 to 31 March X5.
The total of the bills for the periods 1 January X4 to 31 December X4 is 920.
The accrual for the period 1 Jan X5 to 31 March X5 is 230 (based on the bill for the previous three months).
The accrual at the start of the year should have been $10 higher and although this should have been an extra expense for the previous year, we cannot now changes last years figures and so it is accounted for as an extra expense of the current period.Therefore the total expense is 920 + 230 + 10 = $1,160.
(I do explain this point in my free lectures. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.)
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