ExpertEasy2 marksShort Answer
ACCA · Question 15 · Recording transactions and events
A company pays an annual insurance premium of $12,000 on 1 September 20X2 for the year ending 31 August 20X3. The company's financial year end is 31 December 20X2. What is the prepayment amount to be recorded in the statement of financial position at 31 December 20X2? (Enter numbers only)
A company pays an annual insurance premium of $12,000 on 1 September 20X2 for the year ending 31 August 20X3. The company's financial year end is 31 December 20X2. What is the prepayment amount to be recorded in the statement of financial position at 31 December 20X2? (Enter numbers only)
How to approach this question
Calculate how many months of the paid premium relate to the following financial year.
Full Answer
The premium of $12,000 covers 12 months ($1,000 per month). By 31 December 20X2, 4 months have been used (Sept, Oct, Nov, Dec). The remaining 8 months (Jan to Aug 20X3) are prepaid. 8 * $1,000 = $8,000.
Common mistakes
Calculating the expense for the year ($4,000) instead of the prepayment.
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