ExpertMedium1 markShort Answer
ACCA · Question 56 · The Use of Double-Entry and Accounting Systems
Section B - Case 2
Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required:
- A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
- Closing inventory was undervalued by $15,000.
- An allowance for receivables of $8,000 needs to be created.
- Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.
Calculate the amount of rent that has been prepaid at 30 September 20X6 (in $).
Section B - Case 2
Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required:
- A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
- Closing inventory was undervalued by $15,000.
- An allowance for receivables of $8,000 needs to be created.
- Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.
Calculate the amount of rent that has been prepaid at 30 September 20X6 (in $).
How to approach this question
The quarter ends 30 Nov, so it covers Sept, Oct, Nov. Year-end is 30 Sept. Therefore, Oct and Nov (2 months) are prepaid. $12,000 * 2/3 = $8,000.
Full Answer
The $12,000 rent covers the quarter (3 months) ending 30 November 20X6. This means it covers September, October, and November. Since the financial year ends on 30 September, the rent for October and November (2 months) is prepaid. Prepaid amount = $12,000 * (2/3) = $8,000.
Common mistakes
Calculating 1 month prepaid ($4,000) or deferring the whole amount.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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