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I’m sorry for asking so many questions but I suck at Accruals and Prepayments.
Q: The annual insurance premium for S for the period 1 July 2003 to 30 June 2004 is $13,200, which is 10% more than the previous year. Insurance premiums are paid on 1 July.
What is the statement of profit or loss charge for insurance for the year ended 31 December 2003?
Have you watched my free lecture on accruals and prepayments?
Our lectures are a complete course for Paper F3 and cover everything you need to be able to pass the exam well.
This years insurance is 13,200 and so last year it must have been 100/110 x 13,200 = 12,000
We need the expense for 1 Jan 2003 to 31 Dec 2003.
From 1 Jan to 30 Jun 2003 is 6 months and therefore the expense is 6/12 x 12,000.
From 1 Jul to 30 Dec 2003 is again 6 months and therefore the expense for this period is 6/12 x 13,200.Add the two together and you have the total expense 🙂
The question says that $13,200 is 10% more than it was the previous year.
So for every $100 last year, this year is $110. Putting it the other way round, for every $110 this year it was $100 last year.
So if it is 13,200 this year it must have been 100/110 x 13,200 = 12,000 last year.
(And it obviously checks because 13,200 is 10% more than 12,000 🙂 )
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