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Dear Sir,
I can’t understand the logic of the solution to the following problem:
At 31 March 20X2 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 20X3 the heating oil in hand was $9,300 and there was an outstanding heating oil bill of
$3,200.
Payments made for heating oil during the year ended 31 March 20X3 totalled $34,600.
Based on these figures, what amount should appear in the company’s statement of profit or loss and
other comprehensive income for heating oil for the year?The answer is:Payments made 34,600
Add: opening balance 8,200
Less: opening accrual (3,600)
Less: closing balance (9,300)
Add: closing accrual 3,200
Total: 33,100Would you mind explaining it to me? I watched the lectures on open tuition, yet I can’t understand this solving.
thank you.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.
thank you for your reply.
on the problem is saying that on 31 march there is an unpaid bill. this actually means that there is an accrual made on this invoice? which is reversed on 1st of April?also when is mentioned “outstanding heating bill” is this referred to as an accrual?
it is a bit confusing for me as I am thinking that since a bill was issued, why should it be accrued? i am asuming that the company has received these bills (the unpaid bill and the outstanding bill) but they hadn’t paid for them yet. so why to make an accrual for an expense already recorded?
or is this situation presented from a spectactor point of view, where the oil supplier hasn’t received payment for these invoices and the company makes accrual for them?
thank you.We don’t know whether the bill had been recorded or not, but it doesn’t matter.
We know how much was paid, and we are told how much was owing at the start and end of the year (the accruals) – so we can calculate how much was actually bought (which is what we need).A company receives rent for subletting part of its office block.
Rent, receivable quarterly in advance, is received as follows:
Date of receipt Period covered $
1 October 20X1 3 months to 31 December 20X1 7,500
30 December 20X1 3 months to 31 March 20X2 7,500
4 April 20X2 3 months to 30 June 20X2 9,000
1 July 20X2 3 months to 30 September 20X2 9,000
1 October 20X2 3 months to 31 December 20X2 9,000
What figures, based on these receipts, should appear in the company’s financial statements for the year
ended 30 November 20X2?
•In this question 1 October 2011 to 31 December 2011-7500 count like this($7,500 *1/3)=2,500 what is the reason for the calculation of 1/3 or 2500?We need the income for the period 1 December 20X1 to 30 November 20X2.
The first receipt was for October, November and December 20X1. Only December is in our period and the cost for December was 1/3 x $7,500.
I suggest that you watch my free lectures on this. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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