dfs june 2007 question

princess246

Hello

Im re-sitting my DFS exam in Dec. I'm practicing June 2007 exam but im stuck on one of the journals it reads as follows;

The company paid £36k in insurance costs in June 2006 which covered the period 1st July 2006 to 30th June 2007 ( Company statements year end 31st March 2007)

I Debited Prepayment 36

Credited Admin Expenses 36

But when i looked at the anwser it was 9k!!!!!!!!

So i then figured i neede to do a working as follows

£36k x 8/12 = £24000

Im very confused and would appreciate some feedback on where im going wrong

Thanks

Debz

Answer to DFS June exam

You need to exclude 3 months ie. if £36000 is paid covering July 06 to June 07 you need to exclude April,May & June 07 as ye is March 07. Therefore 3/12 x £36000 = £9000.

umerali2003

The company paid £36k in insurance costs in June 2006 which covered the period 1st July 2006 to 30th June 2007 ( Company statements year end 31st March 2007)
That means that 9 months have been paid and the remaining 3 months are prepayment beacuse the year end is 31st of march 2007

so your caluclation will be

36k x 3/12 = 9k
so it will be

Debit prepayment 9k
credit admin expenses 9k

so these r few key points

1 1st july to 31st of march they are 9 months not 8
2 ( 36 x 9/12 = 27) these are those 9 months which have been already paid so this caluclation has nothing 2 do with prepayment
3 ( 36 x 3/12=9k) so the remaining 3 months after your year end is the prepayment

princess246

Thankyou both for your answers it makes perfect sense now!

Thanks

Sarah