ExpertMedium2 marksShort Answer
ACCA · Question 24 · Recording Transactions: Accruals and Prepayments
Section A
A business pays rent quarterly in advance on 1 January, 1 April, 1 July, and 1 October. The annual rent was $24,000 until 30 June 20X4, when it increased to $30,000 per year. The business year-end is 31 August 20X4.
What is the prepayment for rent to be included in the statement of financial position at 31 August 20X4? (Enter the number only)
Section A
A business pays rent quarterly in advance on 1 January, 1 April, 1 July, and 1 October. The annual rent was $24,000 until 30 June 20X4, when it increased to $30,000 per year. The business year-end is 31 August 20X4.
What is the prepayment for rent to be included in the statement of financial position at 31 August 20X4? (Enter the number only)
How to approach this question
Identify the last payment made before year-end. Calculate what period it covers. Determine how many months of that period fall AFTER the year-end. Calculate the value of those months.
Full Answer
The last payment before year-end was on 1 July 20X4. This covers the 3 months of July, August, and September.
The new annual rent is $30,000, so the quarterly payment is $30,000 / 4 = $7,500.
This $7,500 covers 3 months ($2,500 per month).
The year-end is 31 August. Therefore, 1 month (September) is prepaid.
Prepayment = 1 month × $2,500 = $2,500.
Common mistakes
Calculating the prepayment based on the old rent of $24,000, or calculating the expense for the year instead of the prepayment.
Practice the full ACCA FA — Financial Accounting Practice Exam 5
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