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PLEASE help for this question on accruals and prepayment.

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › PLEASE help for this question on accruals and prepayment.

  • This topic has 5 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • February 25, 2016 at 3:29 pm #302040
    weeni0204
    Member
    • Topics: 3
    • Replies: 6
    • ☆

    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. $33,100

    Could 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???

    February 25, 2016 at 7:59 pm #302071
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54671
    • ☆☆☆☆☆

    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.

    February 26, 2016 at 3:13 pm #302191
    weeni0204
    Member
    • Topics: 3
    • Replies: 6
    • ☆

    payment 34,600
    opening balace 8,200
    accruals (3,600)
    closing balance (9,300)
    accruals 3200
    Answer 33100

    But why do we need to subtract the opening accruals but add the closing accruals???

    February 26, 2016 at 3:37 pm #302205
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54671
    • ☆☆☆☆☆

    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.

    February 27, 2016 at 9:45 am #302307
    weeni0204
    Member
    • Topics: 3
    • Replies: 6
    • ☆

    I did follow the lectures but still wasn’t sure about this one. Thank you.

    February 27, 2016 at 1:04 pm #302320
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54671
    • ☆☆☆☆☆

    You are welcome 🙂

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    Posts
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