During its first financial year, ended on 31 December 1995. a firm paid £3,000 in respect of insurance premiums.
All premiums were paid in advance and, except for the following related to policies with renewal dates similar to the firm’s accounting year-end date.
Policy X Policy Y
Annual premium £240 £1,200
Renewal date 30 June 1996 30 April 1996
Premium paid 1 July 1995 1 May 1995
The firm’s insurance expense for 1995 was:
Select ONE answer:
- £2,280
- £2,480
- £2,580
- £3,000
Show your workings to arrive at your answer, and explain and justify your reasons:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 2
- Not correct
- Correct
Year-end Prepayment
Policy X = January to June 1996 = 6 months @ £240 pa. = £120
Policy Y = January to April 1996 = 4 months @ £1,200 pa. = £400
Total = £520
Insurance Expense:
Dr Bank £3,000
Cr Profit and Loss £2,480
Cr Balance c/d (above) £520
Cr Totals £3000 - Not correct
- Not correct
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