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Prepayments help needed - PLEASE

  • 14 posts
  • # 114012

Hi, so sorry to be a nuisance and very grateful for anyone that wouldn't mind helping. I've done my mock paper BA4 and have got a question wrong about prepayments - probably realy simple so some, but i know the answer is £3000, yet i can't work out how to get to that figure.

I've asked my tutor, and she wasn't much help either!

If anybody could spare a moment to expalin to me in plain English, i would be so very grateful!

Thanks so much in advance.

Emma x

 

The question is as follows:

 

Sanjay's business year runs from 1 April to 31 March. At the end of March 2013 his accounts showeed prepaid rent of £600.

During the year to 31 March 2014 he pays £3200 in rent to his landlord in four equal instalments (paid quarterly in advance) on 30 June 2013, 30 September 2013, 31 December 2013 and 31 March 2014.

How much rent should be chanrged to the profit and loss account for the year ended 31 March 2014?

 

 

  • 2 posts
  • # 114015

Basically you have to work out for the latest year, if there are any prepayments...the last installment of rent he pays on 31st march is for the next three months, so is actually a prepayment. He has paid it on the last day of the current year but it is for the first three months of the next year so.....

3200/12 then multiply by 3 gives the amount you need to deduct from the total rent paid that month, which is £800. So deduct that from £3200 gives £2400.

next you must also consider there was a prepayment from the previous year, basically money paid in advance for this year,so you must add in that amount to £2400, 2400+600=3000.

hopefully this has helped, please forgive me for being a bit waffely as its earlier and im tired from an exam i took yesterday lol!!

  • Fellow
  • 18 posts
  • # 114017

Hi Emma,

I always found it helped to draw up a T account for some of these questions and work through the postings in date order.

 

Dr                                                     Cr

01/03/13   Balance c/d        600              31/03/14   Prepayment      800

30/06/13   Bank                800               31/03/14   P&L                3,000

30/09/13   Bank                800

31/12/13   Bank                800

31/03/14   Bank                800

                                     3,800                                                3,800

 

You start off with a balance for the prepayment from the previous year (600), add the rent payments for the year (3,200) and then deduct the value of the prepayment for the following year (800 as the 31/03 payment covers Apr-Jun) which should leave you you with the balance of 3,000 to send to the P&L.

Hope this helps and good luck with the exam!

Dale

  • 14 posts
  • # 114025

emmahills1983 said:

Hi, so sorry to be a nuisance and very grateful for anyone that wouldn't mind helping. I've done my mock paper BA4 and have got a question wrong about prepayments - probably realy simple so some, but i know the answer is £3000, yet i can't work out how to get to that figure.

I've asked my tutor, and she wasn't much help either!

If anybody could spare a moment to expalin to me in plain English, i would be so very grateful!

Thanks so much in advance.

Emma x

 

The question is as follows:

 

Sanjay's business year runs from 1 April to 31 March. At the end of March 2013 his accounts showeed prepaid rent of £600.

During the year to 31 March 2014 he pays £3200 in rent to his landlord in four equal instalments (paid quarterly in advance) on 30 June 2013, 30 September 2013, 31 December 2013 and 31 March 2014.

How much rent should be chanrged to the profit and loss account for the year ended 31 March 2014?

 

 


 Thank you soooo much, you lovely people! x

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