dfs june 2007 question

princess246princess246 Feels At HomePosts: 49Registered
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

Comments

  • DebzDebz Settling In Nicely Posts: 17Registered
    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.
  • umerali2003umerali2003 Trusted Regular Posts: 400Registered
    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
  • princess246princess246 Feels At Home Posts: 49Registered
    Thankyou both for your answers it makes perfect sense now!

    Thanks

    Sarah
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