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Jelena has prepared her draft accounts for the year ended 30October 2015 and needs to make adjustment for the following items:
1) Rent of 21,000 was paid and recorded on 12 July 2014 for the period 1 July to 30 June 2015. The landlord has advised that the annual rent for 2015 will be 24000 although it has not been invoiced or paid yet.
2) Property and contents insurance is paid annually on 1 September. Jelena paid and recorded 12000 on 1 September 2015 for the year from 1 September 2015 to 31 August 2016.
What should the net affect on profit be In the draft accounts for the yaer ended 30 October 2015 of adjusting for the above items?
A) 3000 decrease
C) 2000 increase
D) 3000 increase
According to my calculations,
14000+8000+2000=24000 and then?
Could you help me to finish it and explain increase/decrease part?
I don’t understand why you are attempting questions for which you do not have an answer – you should be using a Revision Kit from one of the ACCA approved publishers.
Also, are you sure that you have typed out the entire question?
1. Presumably nothing has been entered for this year. Therefore they should reduce the profit by this years expense for rent which is 14,000 + 8,000.
2. As far as the insurance is concerned, then assuming again that you have copied out everything word for word, then it would seem like the insurance expense is 12,000 a year. Given that it was not recorded this year (because the payment was made last year) then the profit needs reducing by the expense of 12,000 this year.