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Joanna has prepared her draft financial statements for the year ended 30 April 20X8, and needs to
adjust them for the following items:
1. Rent of $10,500 was paid and recorded on 2 January 20X7 for the period 1 January to
31 December 20X7. The landlord has advised that the annual rent for 20X8 will be $12,000 although it has not been invoiced or paid yet.
2. Property and contents insurance is paid annually on 1 March. Joanna paid and recorded $6,000
on 1 March 20X8 for the year from 1 March 20X8 to 28 February 20X9.
What should the net effect on profit be in the draft financial statements for the year ended 30 April
20X8 of adjusting for the above items?
A $1,000 decrease
B $1,500 increase
C $1,000 increase
D $1,500 decreasehello sir here:
solution way 5000-4000=1000 increase
but l can not understand why 10500$*8/12 has not been calculatedThe balances at the start of the year for the accruals and prepayments will already have been entered in the t-accounts at the end of last year, and the draft statement will have been prepared from the balances left on the accounts at the end of the year before adjusting for the year end accrual and prepayment.
All that needs adjusting therefore is for the necessary accrual and prepayment at the end of the year.
Hi sir! I have a question! Although i have watched your videos of accruals and prepayments. Im getting confuse here..
Vine Co subtlets part of its office accomodation to earn rental income. The rent in recieved quaterly in advance on 1 Jan, 1 April , 1july and 1 october. The annual rent has been $24000 for some years, but it was increased to $30,000 from 1July 2005.
What amounts should appear in Vine Co’s financial statements for the year ended 31 Jan 2006.
Need to find sofp and profit and loss values
Sir here for profit and loss.. it should be 6/12 multiply by 24000 coz Jan,Feb,April,May,June,July and 30,000 multiply by 7/12 multiply by 30,000… okay for sofp dont get how 5000 prepaid income comes? Like 2/3 multiply by 7500 ?dont get itAs at 31 Jan 2006, the latest payment was the receipt on 1 January 2006 which was for the three months of Jan Feb and March 2006.
Therefore 2 months are received in advance, and the amount is 2/12 x 30,000 = $5,000
Sir how is it 5 months for 24000$? Jan,Feb,Mar,Apr,May,June? This makes 6 months.. and then for 30,000 how is it 7 months?
The year end is 31 January – not 1 January.
So for $24,000 it is Feb, Mar, Apr, May, Jun – which is 5 months.
The other 7 months are at $30,000.
Sir, I can’t understand clearly how’s the answer is 1000 increase??
I’m reach at the answer 1000 by minus 4000 accruals from 5000 prepayments but can’t understand the how’s it shows 1000 increase??The accrual increases the expense and therefore reduce the profit. The prepayment reduces the expense and therefore increases the profit.
Hello Sir,
Not recorded expenses $4000
Over recorded expenses $5000 (Prepaid)
So, effect is increase in net profit $1000
Am i right?
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