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Hi John
Please help with this question:
During 20×4, Hild Co paid a total of $60,000 for rent, covering the period from 1 October 20×3 to 31 Mar 20×5.
What figures should appear in Hild Co’s financial statements for the year ended 31 Dec 20×4?
The answer given is
SOPL – 40,000 & SOFP 10,000 PrepaymentPlease kindly explain how this is derived?
Thanks for your help
The $60,000 covers a period of 18 months (from 1 Oct X3 to 31 Mar X5)
We need the expense for 12 months (1 Jan X4 to 31 Dec X4).
The expense is therefore 12/18 x 60,000 = $40,000.
As at 31 December X4 the had prepaid for the period 1 Jan X5 to 31 Mar X5, which is 3 months.
The prepayment is therefor 3/18 x 60,000 = $10.000
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