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Accruals & Prepayment

Forums › ACCA Forums › ACCA FA Financial Accounting Forums › Accruals & Prepayment

  • This topic has 3 replies, 3 voices, and was last updated 1 year ago by mrjonbain.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • September 3, 2021 at 7:57 pm #634203
    ather
    Member
    • Topics: 7
    • Replies: 11
    • ☆

    Sir, I’ve no problem with the calculation but my question is why our answer is not “Prepayment of $1090” ?
    As Dave is paying in advance for 3 months? So, at the year end 1 month is still pre-paid.

    Dave Hull is preparing his final accounts for the year to 30 April 20X6. The last payment Dave made for
    electricity was in March 20X6 when he paid $3,270 for the three months to 28 February 20X6.
    What adjustment does Dave need to make when preparing his final accounts for the year to 30 April
    20X6?
    A A prepayment of $1,090
    B An accrual of $1,090
    C A prepayment of $2,180
    D An accrual of $2,180

    September 3, 2021 at 8:18 pm #634204
    SukainaKamar
    Participant
    • Topics: 20
    • Replies: 20
    • ☆

    Hi ather hope ur good, was going through and saw your question.
    – So if u notice the year ends on 30th April 20×6.
    – his last payment was on march for 3 MONTHS TO: to 28th February 20×6.
    – Now this statement means he paid electricity bill for December, January and February.
    – This is because electricity bills are usually paid after the electricity is used then a bill is sent after the electricity is already used to have accurate charges to the customer.
    – so don’t confuse yourself thinking the bill paid in march was for march, April and May. NO!
    – The payment was for 3 month to 28th February. this means that on march he paid his bill due from December 20X5 to February 20×6 to complete his 3 month bill.
    – This means that at the end of April 20×6, he has not yet paid for march and April.
    – therefore the charge per month is calculated as being the same as the charge per month for the previous three months.

    – $3270 divide by 3.
    – makes $1090 per month.
    – hence accruals for the 2 months march and April will be $1090 times 2
    – giving $2180 accruals at the year end.

    September 4, 2021 at 6:46 pm #634332
    ather
    Member
    • Topics: 7
    • Replies: 11
    • ☆

    My bad sir, Sorry took a lot of time of yours. I misunderstood the question. Really appreciate for the support sir.

    September 5, 2021 at 1:50 pm #634465
    mrjonbain
    Moderator
    • Topics: 1
    • Replies: 1558
    • ☆☆☆☆☆

    ather, if you want to ask the tutor something directly, please use the ask the tutor forum-

    https://opentuition.com/forum/ask-acca-tutor-forums/ask-the-tutor-acca-fa/

    This forum is primarily designed for students to help one another. Hope this helps.

  • Author
    Posts
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