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The Rent income account of BB Stores reflected a total of R69 000 on 28 February 2015, the end of the accounting period. This was in respect of rent for an office occupied by a tenant for the entire financial year. The monthly rent was increased by 10% with effect from 01 September 2014. The rent for February 2015 has not been received by 28 February 2015. Which amounts will appear in the Profit and Loss account for the year ended 28 February 2015 in respect of rent income?
Please do not simply set me test questions – you presumably have an answer in the same book in which you found the question.
Instead, ask which part of the answer is causing you problems.This question cannot possibly be asked in the Paper F3 exam – it really needs a bit of algebra.
If the old rent per month was X, then the cash received from 1 Mar 2014 to 31 August 2014 will be 6X.
The rent then goes up to 1.1X, and so the cash received from 1 September 2014 to 28 February will be 5 x 1.1X = 5.5X (the rent for February has not been received).So the total received = 6X + 5.5X = 11.5X = 69,000.
Therefore X = 6,000.
Therefore the rent owing for February = 6,600 (6,000 x 1.1).Therefore the total income in the Statement of profit or loss will be 69,000 + 6,600 = 75,600. (We stopped calling it the profit and loss account many, many years ago!!)
Again, this is not the sort of question that is asked in Paper F3.
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