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ACCA Applied Knowledge · Financial Accounting · Accrued expenses (accruals), prepaid expenses (prepayments), accrued income and deferred income

A company rents out part of its premises. During the year ended 31 December 20X5 it received $18,000 in rent, which covers the 12 months from 1 April 20X5 to 31 March 20X6. How much rent income should be recognised in profit or loss for the year ended 31 December 20X5?

Rent income for the year is $13,500. Only nine of the twelve months covered by the $18,000 receipt fall within the year to 31 December 20X5, so the remaining $4,500 relates to the next period and is carried forward as deferred income.

  1. A$18,000
  2. B$13,500Correct
  3. C$4,500
  4. D$9,000

Explanation

Rent for 9 months (April to December) falls in 20X5: $18,000 x 9/12 = $13,500. The remaining $4,500 relates to 20X6 and is deferred income, a liability. Recognising $18,000 ignores the deferral; $4,500 is the deferred amount, not the income.

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