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?
A $2,185
B $2,205
C $2,155
D $2,215
I always get the wrong answer, can u pls help me sir?
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Accurals and prepayment
10y ago#1At 1 April there is a prepayment of 60 and an accrual of 80.
The cash paid during the year is 2145.
At 31 March there is an accrual of 120 and a prepayment of 60
So the total expenses is 2145 + 60 - 80 - 60 + 120 = 2185
Sir can u explain how come there is a prepayment of 60?
10y ago#3Because the had paid the line rental for 3 months but 2 months (April and May) had been prepaid. 2/3 x 90 = 60.
I'm sorry sir, I still don't get it?
10y ago#5They received a bill on 1 March which includes line rental of 90.
The question says that the line rental is payable quarterly in advance. So the payment on 1 March is for March, April and May. April and May are prepaid.
Thank u sir, and did I miss typed anything?
10y ago#7You are welcome (and I don't think that you mistyped!) :-)
Can You please explain why the total expenses is 2145 + 60 – 80 – 60 + 120 = 2185
why + 60 ? - 80 ? etc ? thanks
4y ago#9Because of the opening and closing accruals and prepayments.
Have you watched my free lectures on this?
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