FA – Nov 2015 – L1 – SA – Q20 – Accounting Treatment for Accruals and Prepayments

This question calculates the total rent expense to be charged to the profit or loss statement for the year.

Question

The information below relates to the accounting period ended December 31, 2013.
N
Prepaid rent brought forward: 22,000
Rent paid during the period: 216,000
Accrued rent carried forward: 26,000

In line with the accrual concept, what should be the amount of rent to be charged to the statement of profit or loss in the year ended December 31, 2013?
A. N264,000
B. N242,000
C. N238,000
D. N216,000
E. N48,000

Answer

A. N264,000

Explanation:
To determine the rent expense to be charged to the statement of profit or loss, we need to account for all rent obligations during the period according to the accrual concept. The formula is:

Using the provided figures:

Rent Paid: N216,000
Accrued Rent (to be added): N26,000
Prepaid Rent (to be subtracted): N22,000

Calculating:

Thus, the total amount of rent to be charged to the statement of profit or loss for the year ended December 31, 2013, is N264,000.

Tags: Accounting principles, Accruals, Rent Expense
Level: Level 1

Topic: Accruals and Prepayments
Series: NOV 2015

Uploader: Dotse