Accounting Multiple Choice Question – 22 December 2019

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:

1. £2,280
2. £2,480
3. £2,580
4. £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

1. Not correct
2. 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
3. Not correct
4. Not correct

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Author: stuart001uk2014

Referral marketing, business, economics and accounting s​pecialist & corporate mentor View all posts by stuart001uk2014