- 10 Marks
FA – L1 – Q36 – Accruals and prepayments
Question
Kieran started a business on 1 January 20X8.
Accounting year ended 31 December 20X8:
A new warehouse was acquired on 31 March 20X8. On 21 April 20X8, Kieran received a water bill demand for GH₵1,000,000 for the 12 months to 31 March 20X9. Payment was made, in full, on 30 April 20X8.
Accounting year ended 31 December 20X9:
An office extension was built. The water bill demand for the 12 months to 31 March 20Y0 was GH₵1,600,000. Kieran paid the full amount on 1 June 20X9.
Required:
(a) Write up the water expense ledger account for 20X8 and for 20X9.
(b) Assuming now that payments were made annually in arrears (i.e. GH₵1,000,000 on 31 March 20X9 and GH₵1,600,000 on 31 March 20Y0), write up the water expense ledger account for each of the two accounting years.
Answer
Water a/c 20X8
| Date | Details | GH₵(000) | Date | Details | GH₵(000) |
|---|---|---|---|---|---|
| 31 Dec | Statement of P or L | 750 | 30 Apr | Cash | 1,000 |
| 31 Dec | Prepayment (W1) | 250 | |||
| 1,000 | 1,000 |
Workings
(W1) Prepayment
Water bill runs from 1 April 20X8 to 31 March 20X9
Charge for the year: 9/12 × GH₵1,000 = 750
Prepayment: 3/12 × GH₵1,000 = 250
Water a/c 20X9
| Date | Details | GH₵(000) | Date | Details | GH₵(000) |
|---|---|---|---|---|---|
| 1 Jan | Prepayment b/d | 250 | 31 Dec | Statement of P or L (W2) | 1,200 |
| 1 Jun | Cash | 1,600 | 31 Dec | Prepayment (W2) | 400 |
| 1,850 | 1,600 |
Workings
(W2)
Water bill runs from 1 April 20X9 to 31 March 20Y0
Charge for the year: 9/12 × GH₵1,600 = 1,200
Prepayment: 3/12 × GH₵1,600 = 400
Water a/c 20X8 (in arrears)
| Date | Details | GH₵(000) | Date | Details | GH₵(000) |
|---|---|---|---|---|---|
| 31 Dec | Statement of P or L | 750 | 31 Dec | Accrual | 750 |
| 750 | 750 |
Workings
Water bill runs from 1 April 20X8 to 31 March 20X9
Charge for the year: 9/12 × GH₵1,000 = 750
Accrual: 9/12 × GH₵1,000 = 750
Water a/c 20X9 (in arrears)
| Date | Details | GH₵(000) | Date | Details | GH₵(000) |
|---|---|---|---|---|---|
| 31 Mar | Cash | 1,000 | 1 Jan | Accrual b/d | 750 |
| 31 Dec | Statement of P or L (W3) | 1,200 | 31 Dec | Accrual (W3) | 1,200 |
| 2,200 | 1,950 |
Workings
(W3)
Water bill runs from 1 April 20X9 to 31 March 20Y0
Charge for the year: 9/12 × GH₵1,600 = 1,200
Accrual: 9/12 × GH₵1,600 = 1,200
- Tags: Accruals, Financial Adjustments, Ledger accounts, Prepayments, Water Expense
- Level: Level 1
- Topic: Accruals and prepayments
- Uploader: Samuel Duah