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Hi,
Can you explain how we get to the answer because i can not seem to work it out.
Page 33, question 2.
Moira prepares financial statements for the year to 30 April each year. The company pays rent for its premises quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was 201,600 per year until 30 June 2008. It was increased from that date to 230,400 per year.
What rent expense and end of year prepayment should be included in the financial statement for the year end 30 April 2009?
Answer: (201,600 × 2/12) + (230,400 × 10/12) = 225,600; 230,400 × 2/12 = 38,400
So…………………..old rate was: 201,600 / 12 = 16800 per month, new rate is: 230,400 / 12 = 19200 per month…………………..Now, Financial year starts in May, 2008……….for May June, Moira has used rent at 16800 per month….then next 10 months, upto April 30, Moira used rent for 19200 per month……..so TOTAL expense is equal to = (16800 * 2) PLUS (19200 * 10) which equals to 225600…………….PREPAYMENT……….well Moira pays on 1 April for 3 months, so at end of April 2009, 2 months will still be UNused……and rate is 19200 per month as calculated above……so PREPAYMENT is equal to (19200 * 2) which is equal to 38400.
It will be very EASY and VISBLE if you make a TIMELINE
Apr 08 June 08 Apr 09
l____________l_____________________l__________lThanks Salah Uddin. I did finally working it out after posting here. I was getting confused with the months and the tax year and was just working from start of January which is wrong. I think you are correct that making a time line would be really helpful.
Thanks
AJ
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