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A company receives rent from a large number of properties. The total received in the year ended 31 October
20X2 was $481,200.
The following were the amounts of rent in advance and in arrears at 31 October 20X1 and 20X2:
31 October 20X1 31 October 20X2
$ $
Rent received in advance 28,700 31,200
Rent in arrears (all subsequently received) 21,200 18,400
What amount of rental income should appear in the company’s statement of comprehensive income for the
year ended 31 October 20X2?
A $486,500
B $460,900
C $501,500
D $475,900Please do not simply set a test question and expect a full answer.
There must be an answer in the same book in which you found the question!Say what problem you are having and then I will try and help.
This question is from BPP exam kit 2010!
Yes there is a full answer available but I do not understand the double entry done in the rent receivables T-account.You do not need a t-account – by all means prepare one if you find it easier, but you will never be asked to write up a t-account in the exam and I think it wastes time anyway (and time is critical in this exam).
They received cash of 481200. However, at the start of the year they were owed 21,200 which was received this year, and so this needs removing from the 481,200. Also, at the start of the year they had received 28700 in advance – this is income for this year and so needs adding to the 481200.
At the end of this year, they were still owed 18400 – this is income for this year and so needs adding to the 481200. Finally, at the end of this year they had received 31200 in advance, so this is included in the 481200 but needs removing.
So the income for this year is 481200 – 21200 + 28700 + 18400 – 31200 = 475900.
It almost all makes sense now. But just once confusion, I can see that you subtracted the figures that weren’t part of this year’s income, but why did you added those ones which were the part of the year? Aren’t all these already included in the 481,200?
No – the amount paid in advance last year is not in this years cash received (the cash was received last year). The amount owing to us at the end of the year is not in this years cash received (the cash is received next year), but it is this years income.
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