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M4 Prepayment Question

  • Student
  • 2 posts
  • # 118969

Hi all,

I hope anyone can help!

I am currently studying M4 and I'm stuck on a prepayment question.

A business runs from 1st January to 31st December. During the year to Dec 31st the business has paid £7200 for Rent. The rent is paid quarterly in advance. The last quarterly payment was made on the 1st December. How much rent should be shown as prepaid at the year ending 31st December?

Now when I've looked at the Additional Resource section, a question like this has advised - A payment has been made on the 1st November for payment quarterly in advance covering December, January and Febraury.

From this analogy, I would presume the payment made on the 1st December quarterly in advance covers January, February and March. Meaning, all three payment months are prepaid. However, this is incorrect.

Is anyone able to explain in simple terms the works for this question? Seems to me the Additional Resource workings out conflict with this question and I'm not quite sure what to think.

I have already contacted my tutor regarding this, however I haven't really had an answer.

Thank you in advance!

  • Member
  • 3 posts
  • # 118972

ashleighkeats said:

Hi all,

I hope anyone can help!

I am currently studying M4 and I'm stuck on a prepayment question.

A business runs from 1st January to 31st December. During the year to Dec 31st the business has paid £7200 for Rent. The rent is paid quarterly in advance. The last quarterly payment was made on the 1st December. How much rent should be shown as prepaid at the year ending 31st December?

Now when I've looked at the Additional Resource section, a question like this has advised - A payment has been made on the 1st November for payment quarterly in advance covering December, January and Febraury.

From this analogy, I would presume the payment made on the 1st December quarterly in advance covers January, February and March. Meaning, all three payment months are prepaid. However, this is incorrect.

Is anyone able to explain in simple terms the works for this question? Seems to me the Additional Resource workings out conflict with this question and I'm not quite sure what to think.

I have already contacted my tutor regarding this, however I haven't really had an answer.

Thank you in advance!

Hi Ash prepayment should be for tow months Jan and Feb. Suppose you were a business man and you were to pay rent in advance, would you pay on first of the quarter or a month ahead of the quarter ? 
Hope it should help you !
Regards
Prakash

 

  • Student
  • 21 posts
  • # 118981

Hi Ash,

My understanding of your question would be, pre payment of £1,200.

The rent was paid in advance on the 1st of December, the year end is 31st December, so the prepayment is for January and February, the first 2 months of the new financial year.

7,200/12=600x2=1,200. 600 for January and 600 for February both after the year end date.

Hope I understand this correctly and of some help to you.

Des.

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