- This topic has 2 replies, 2 voices, and was last updated 6 days ago by Kim Smith.
September 22, 2022 at 12:19 am #666940joeylee98
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The electricity account for the year ended 30 June 20X1 was as follows.
Opening balance for electricity accrued at 1 July 20X0 – 300
Payments made during the year
1 August 20X0 for three months to 31 July 20X0 – 600
1 November 20X0 for three months to 31 October 20X0 -720
1 February 20X1 for three months to 31 January 20X1 -900
30 June 20X1 for three months to 30 April 20X1- 840
1 August 20X1 for three months to 31 July 20X1- 840
What was the expense charged to the statement of profit or loss for the year ended
30 June 20X1?
Accrued at June 20X1 Charged to SPL
year ended 30 June 20X1
I have copied an answer from another forum.
We need the total expense for the period 1 July X0 to 30 June X1.
So go through the payments and list what is relevant for this period.
The first payment is for May, June, July X0, so only July is relevant – 1/3 x 600 = 200
The whole of the next free payments are relevant: 720 ; 900; 840.
However the last payment is for May, June and July X1. Only May and June are relevant for our period, so – 2/3 x 840 = 560
Then add them all up
But the right answer for the charge to SPL for the year ended 30 June 20X1 is 3320?
My first question is why do we include 600 in this year’s payments when only 1/3 x 600 = 200 pertains to the current period? Why is this figure included, and in other questions they will time apportion it?
Secondly, at the end of the period, only 2/3 x 840 = 560 pertains to the current period. Yet in previous forums, I have seen it argued that 560 is the accrual.
What are the dynamics and explanations behind ‘why’ we use these numbers the way we do (e.g. including the 600)?
Thanks in advance.September 22, 2022 at 7:59 am #666950Kim SmithKeymaster
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Welcome to OpenTuition forums!
You don’t say what forum you got the previous answer from but it is WRONG in asserting that “1/3 x 600 = 200” is relevant.
During the year payments = 3,060 (600 + 720 + 900 + 840)
But that is not the expense for the year because:
(1) 300 was accrued at the beginning of the year (in respect of May and June X0). This was part of last year’s expense so is DEDUCTED
(2) 2/3 x 840 = 560 needs to be an accrual (“accrued expense”) for 2 months (May and June X1). This is part of this year’s expense so must be ADDED.
Therefore answer is – 300 (b/f) + 3,060 (paid) + 560 (c/f) = 3,320September 22, 2022 at 8:01 am #666951Kim SmithKeymaster
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If you still don’t see it I strongly recommend you watch John’s lectures here https://opentuition.com/acca/fa/acca-financial-accounting-fa-lectures – see Chapter 4
And note that you posted accidentally to an audit forum (not financial accounting).
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