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Prepayment/ accrual

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Prepayment/ accrual

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
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  • Author
    Posts
  • May 23, 2019 at 4:55 pm #517029
    Ha
    Participant
    • Topics: 54
    • Replies: 54
    • ☆☆

    Hi Mr John . Can you pls help this ?
    The annual insurance premium for S for the period 1 July 2003 to 30 June 2004 was $13.200 , which is 10% more than the previous year . Insurance premium are paid on 1 July . What is the statement of PL charge for insurance for the year ended 31 Dec 2003 ?

    My workings is 13.200*100/110 = 12.000
    Payment from 1 July- 31 Dec 2003 is 12000*6/12 = 6000

    Book workings s shown ” 6 months at 12.000 plus 6.000 at 13.2000= 6000+6600=12.600

    Why do we need to calculate for that 6.600?
    As the value from 1 Jan 2004- 30 June 2004 is prepayment . That should be in SOFP ?

    May 23, 2019 at 5:17 pm #517037
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    The premium for the period 1 July 2003 to 30 June 2004 was 13,200.
    Therefore the cost of the insurance from 1 July 2003 to 30 December 2003 is half of this and is 6/12 x 13,200 = 6,600.

    For the cost of the insurance from 1 January 2003 to 30 June 2003, this is part of the payment for the period 1 July 2002 to 30 June 2003 which was 12,000.
    For 1 January 2003 to 30 June 2003, the cost is half of 12,000 which is 6,000.

    So the total expense is indeed 12,600.

    The amount paid that covers 1 January 2004 to 30 June 2004 (which is 6,600) is indeed a prepayment and would appear in the SOFP as a current asset.

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