- 12 Marks
FA – L1 – Q37 – Accruals and prepayments
Question
Vulcan owns a removal business and runs a small fleet of vans. He prepares his accounts to 31 December each year.
The following transactions occur in relation to insurance for the year 20X9.
1 January: The amount prepaid for insurance was GH¢1,140,000.
1 April: He paid GH¢840,000 insurance for the year ended 31 March 20Y0 on six of the vans.
1 May: He paid GH¢3,540,000 insurance for twenty vans for the year ended 30 April 20Y0.
1 July: He paid GH¢560,000 insurance for the remaining vans for the year ended 30 June 20Y0.
Required:
Write up the insurance account for the year ended 31 December 20X9.
Answer
Insurance a/c
| Date | Details | GH¢(000) | Date | Details | GH¢(000) |
|---|---|---|---|---|---|
| 1 Jan | Prepayment b/d | 1,140 | 31 Dec | Statement of profit or loss | 4,410 |
| 1 Apr | Bank (6 vans, year to 31 Mar 20Y0) | 840 | 31 Dec | Prepayment c/d | 2,360 |
| 1 May | Bank (20 vans, year to 30 Apr 20Y0) | 3,540 | |||
| 1 Jul | Bank (remaining vans, year to 30 Jun 20Y0) | 560 | |||
| Total | 6,770 | Total | 6,770 |
Workings
(1) Prepayment at the end of the year
- Insurance on six vans paid 1 April 20X9: 3/12 × GH¢840,000 = 210
- Insurance on twenty vans paid 1 May 20X9: 4/12 × GH¢3,540,000 = 1,180
- Insurance on remaining vans paid 1 July 20X9: 6/12 × GH¢560,000 = 280
Total Prepayment: 210 + 1,180 + 280 = 2,360
PROOF
- Charge for the year:
- Prepayment b/d: 1,140
- Insurance (9/12 × GH¢840,000) = 630
- Insurance (8/12 × GH¢3,540,000) = 2,360
- Insurance (6/12 × GH¢560,000) = 280
Total Charge: 1,140 + 630 + 2,360 + 280 = 4,410
- Topic: Accruals and prepayments
- Uploader: Samuel Duah