FA-CH-11

Ezra adjusts his year-end financial statements to reflect an accrual of $680 for water costs.

What is the effect of the accrual for water costs on the net profit and net assets of Ezra’s business?

• 1. Increase net profit by $680 and increase net assets by $680

• 1. Increase net profit by $680 and decrease net assets by $680

• 1. Decrease net profit by $680 and decrease net assets by $680

• 1. Decrease net profit by $680 and increase net assets by $680

Ibuku is a sole trader who rents a workshop to make his products. He pays rent in advance on 31 Jan, 30 April, 31 July and 31 October. Ibuku’s business has a year end of 31 December. Rent was initially $1,800 per quarter but this rose by 10% on 1 May.

How much should Ibuku include for rent in his statement of profit or loss and other comprehensive income?

• 1. $7,200

• 1. $7,680

• 1. $7,740

• 1. $7,920

Jelena has prepared her draft accounts for the year ended 30 October 20X5 and needs to make adjustments for the following items:

• Rent of $21,000 was paid and recorded on 12 July 20X4 for the period 1 July to 30 June 20X5. The landlord has advised that the annual rent for 20X5 will be $24,000 although it has not been invoiced or paid yet.

• Property and contents insurance is paid annually on 1 September. Jelena paid and recorded $12,000 on 1 September 20X5 for the year from 1 September 20X5 to 31 August 20X6.

What should the net effect on profit be in the draft accounts for the year ended 30 October 20X5 of adjusting for the above items?

• 1. $3,000 decrease

• 1. $2,000 decrease

• 1. $2,000 increase

• 1. $3,000 increase

On 19 December 20X3 Mo paid $4,400 for insurance for the period 1 October 20X3 to 30 September 20X4. Mo paid $4,800 on 5 January 20X5 for the period 1 October 20X4 to 30 September 20X5. Mo's business year end is 31 December.

Which of the following options correctly identifies the year-end positions with regard to accruals and prepayments?

• 1. 31 December 20X3: Accrual $3,300. 31 December 20X4: Prepayment $3,600.

• 1. 31 December 20X3: Prepayment $3,300. 31 December 20X4: Accrual $1,200.

• 1. 31 December 20X3: Prepayment $3,300. 31 December 20X4: Prepayment $1,200.

• 1. 31 December 20X3: Accrual $1,100. 31 December 20X4: Accrual $1,200.

Chan is a sole trader who pays rent twice a year. Annual rent increases take effect on 1 October.

On 1 January 20X4 the rent expense account showed a prepayment of $1,200. Chan paid rent of $2,400 on 1 April 20X4 and $2,600 on 1 October 20X4. At 31 December 20X4 the rent expense account showed a closing prepayment of $1,350.

How much should Chan include in his statement of profit or loss for rent for the year ended 31 December 20X4?

• 1. $6,200

• 1. $5,000

• 1. $4,850

• 1. $3,650

Hassan estimated he owed $360 for three months’ electricity at 30 June 20X8. During the year ended 30 June 20X9 he paid his electricity company $1,550 for 12 months’ electricity up until 31 March 20X9.

How much should Hassan include in his statement of profit or loss for electricity for the year ended 30 June 20X9?

• 1. $1,190

• 1. $1,550

• 1. $1,577.50

• 1. $1,937.50

Bob has paid $2,500 for 10 months’ hire (or rental) of equipment. This payment is the only record made in his accounts for the hire. At the year-end he still owes for the remaining two months.

Which of the following journals correctly show the entry that Bob must make in his accounts?

• 1. DR Hire expenses $500, CR Accruals $500

• 1. DR Accruals $500, CR Hire expenses $500

• 1. DR Prepayments $500, CR Hire expenses $500

• 1. DR Hire expenses $500, CR Prepayments $500

A company owns three properties which it rents out. Rent amounts to $600 per quarter per property due on 31 January, 30 April, 31 July and 31 October. The properties have been occupied throughout the year to 31 December 20X6. Two tenants pay in advance and one in arrears.

What amount for rental income should be included in profit or loss for the year to 31 December 20X6?

• 1. $1,800

• 1. $2,400

• 1. $6,600

• 1. $7,200

In January 20X4, a business pays $4,200 for insurance to cover the period from 1 January 20X4 to 31 December 20X4. The business prepares its financial statements to 30 September each year.

What adjustment is required at the year end to the insurance expense for the year ended 30 September 20X4?

• 1. Accrual of $1,050

• 1. Prepayment of $1,050

• 1. Accrual of $3,150

• 1. Prepayment of $3,150

In the year to 31 July 20X7 Twiddle received $36,900 rental income. The amounts of rent received in advance and due in arrears were as follows:

31 July 20X7 31 July 20X6

Rent received in advance $1,800 $1,950

Rent due in arrears $1,350 $1,050

What figure for rental income should be recorded in the profit or loss account for the year ended 31 July 20X7?

• 1. $36,450

• 1. $36,750

• 1. $37,050

• 1. $37,350