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At 1 July 20X4 a company had prepaid insurance of $8,200. On 1 January 20X5 the company paid $38,000 for insurance for the year to 30 September 20X5.
What figures should appear for insurance in the company’s financial statements for the year ended 30 June 20X5?SPLOCI———————–SOFP
A)$27,200———————-Prepayment $19,000
B)$39,300———————-Prepayment $9,500
C)$36,700———————-Prepayment $9,500
D)$55,700———————-Prepayment $9,500Sir I am not able to get any of the above figures. The expense that I got on the insurance account is $36960 and a prepayment of $9240. Is there a problem with the answers in this question or are the figures I got wrong?
The book is correct and it is your figures that are wrong 🙁
The $38,000 payment covered the period 1 October 20X4 to 30 September X5.
We need the expense for the period 1 July X4 to 30 June X5.
So from the 38,000, only 9 months (1 Oct X4 to 30 June X5) is an expense for our period, which is 9/12 x $38,000 = $28,500.
In addition the pre-payment of $8,200 will have covered the period 1 July X4 to 30 Sep X4, and so the total expense is 28,500 + 8,200 = $36,700.
The answer is therefore C. In the exam do not waste any more time, but as a check here the prepayment is for 1 Jul X5 to 30 Sep X5, which is 3 months and so the prepayment in the SOFP is 3/12 x 38,000 = $9,500.
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