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Hi John, Could you explain the answer to this one? I can see what they have done in the textbook with the T account, but struggling to get my head around what’s actually happening.
Question 159 from Kaplan:
Leddley owns two properties which it rents to tenants. In the year ended 31 December 20X6, it received $280,000 in respect of property 1 and $160,000 in respect of property 2. Balances on the prepaid and accrued income accounts were as follows:31 December 20X6
Property 1: 13,400 Dr
Property 2: 6,700 Cr31December20X5
Property 1: 12,300 Cr
Property 2: 5,400 DrWhat amount should be credited to the statement of profit or loss for the year ended 31 December 20X6 in respect of rental income?
Answer $453600
For property 1:
At the start of the year they owed 12,300 to the tenant and so the tenant had prepaid and the 12,300 is actually income of this year. At the end of the year they are owed 13,400 by the tenant and so that is also income of this year.
So the total income is 280,000 + 12,300 + 13,400 = $305,700For property 2:
At the start of the year they were owed 5,400 by the tenant. Therefore part of the cash received this year is in respect of the 5,400 and is not income of this year. At the end of the year they owe 6,700 to the tenant, so part of the cash received this year is the 6,700 that they have prepaid and is income of next year.
So the total income is 160,000 – 5,400 – 6,700 = $147,900.The total of the two is $453,600
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