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Question.
At the 31 March 20×2 a company had oil in hand to be used for heating costing $8,200 and an unpaid heating oil bill for $3,600.
At 31 March 20×3 he heating oil inn hand was $9,300 and here was an outstanding heating oil bill of $3,200.
Payments made for heating oil during the year ended 31 March 20×3 totalled $34,600.
Based on these figures, what amount should appear in the company’s statement of comprehensive income for heating oil for the year?
A. $23,900
B. $36,100
C. $45,300
D. $33,100Could you please give me step by step approach to the answer?
I do know the answer is D, but why do we need to subtract heating oil in hand at 31 March 2003 and add accruals???The amount to appear in the statement of profit or loss is the cost of the heating oil actually used during the year.
You can calculate how much was actually purchased (by taking the amount paid during the year and adjusted by the amounts owing at the start and end of the year).
Once you know how much was actually purchased, you can calculate how much was used by adjusting for the opening and closing inventories.
payment 34,600
opening balace 8,200
accruals (3,600)
closing balance (9,300)
accruals 3200
Answer 33100But why do we need to subtract the opening accruals but add the closing accruals???
Because we need the expense for the year.
Part of the cash paid this year was the amount owing at the start of the year (the opening accrual) and in addition we have bought goods but not year paid for them (the closing accrual).
I really do suggest that you watch our free lecture on accruals and prepayments.
Our lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
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