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A business compiling its financial statements for the year to 31 January each year pays rent quarterly in advance on 1 January, 1 April, 1 July, and 1 October each year. After remaining unchanged for some years, the rent was increased from $24000 per year to $30000 per year as from 1 July 20X0.
Which of the following figures the rent expense which should appear in the statement of profit or loss for the year ended 31 January 20X1?
Solution given by practice kit:
5 months ÷ 12 months × $24000 = $10000
7 months ÷ 12 months × $30000 = $17500Total rent: 10000 + 17500 = $27500
What is the logic behind multiplying $24000 5 times when the rent only changed after first July implying that the $24000 dollars should have been multiplied 6 times.
Is this an erroneous answer from BPP?The answer is correct.
The businesses accounting year runs from 1 February to 31 January.
The rent increased on 1 July and from 1 February to 1 July is 5 months (Feb; Mar; Apr; May; Jun)
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