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ACCA · Question 17 · Recording Transactions and Events
A software company pays an annual server hosting subscription of $36,000 in advance on 1 September each year. The company's financial year end is 31 December. What is the value of the prepayment to be recognized in the Statement of Financial Position at 31 December? (Enter numbers only)
A software company pays an annual server hosting subscription of $36,000 in advance on 1 September each year. The company's financial year end is 31 December. What is the value of the prepayment to be recognized in the Statement of Financial Position at 31 December? (Enter numbers only)
How to approach this question
Calculate the monthly cost. Determine how many months have been paid for that fall into the NEXT financial year.
Full Answer
The annual payment of $36,000 covers 12 months from 1 September to 31 August ($3,000 per month). At 31 December, 4 months (Sept, Oct, Nov, Dec) have been used. The remaining 8 months (Jan to Aug) are prepaid. Prepayment = 8 months × $3,000 = $24,000.
Common mistakes
Calculating the expense for the year ($12,000) instead of the prepayment carried forward.
Practice the full ACCA FA — Financial Accounting Practice Exam 4
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