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Accural and Prepayment Mixed Bank

HHtwe3922d ago

A company's telephone bill consists of two elements. One is a quarterly rental charge, payable in advance; the other is a quarterly charge for calls made, payable in arrears. At 1 April 20X9, the previous bill dated 1 March 20X9 had included line rental of $90. Estimated call charges during March 20X9 were $80. During the following 12 months, bills totalling $2,145 were received on 1 June, 1 September, 1 December 20X9 and 1 March 20Y0, each containing rental of $90 as well as call charges. Estimated call charges for March 20Y0 were $120. What is the amount to be charged to the statement of profit or loss for the year ended 31 March 20Y0?

Can you please explain this? Thank you so much for your time.

John MoffatJohn MoffatTutor22d ago#1

We need the total expense for the period 1 April 20X9 to 31 March 20Y0.

The total cash paid was $2,145

As 1 April 20X9 they had already paid rental of $90 for the three months March, April and June 20X9.. So there was a prepayment of 2/3 x $90 = $60 which is an expense of the period we are interested in.

Included in the amount paid in the period is rental of $90 for the 3 months March, April and June 20Y0 and so there is a prepayment at the end of the period of 2/3 x 90 = $60, which is not an expense of our period.

The call charges for March 20X9 of $80 were paid in our period - they were accrued at 1 April 20X9 and are not an expense of our period.

The estimated call charges for March 20Y0 of $120 had not been paid as at 31 March and so would be accrued - they are an expense of our period.

So the total expense for the period we are concerned with is 2,145 + 60 - 60 - 80 + 120 = $2,185

HHtwe3921d ago#2

Isn't it a rental of $90 for March, April and May 20X9? So March will not be included because our YE runs from 1 April 20X9 to March 20Y0.

John MoffatJohn MoffatTutor21d ago#3

That is correct, but the 90 was paid on 1 March X9 which was during the year ended 31 March X9. April and May need charging in the year to 31 March Y0 and for those two months the expanse is 2/3 x 90 =60

HHtwe3920d ago#4

I got it. Thank you for your help.

John MoffatJohn MoffatTutor20d ago#5

You are welcome :-)

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