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

Delmar Ltd rents premises at $4,800 per quarter, payable in advance on 1 January, 1 April, 1 July and 1 October. The rent rose from 1 July to $6,000 per quarter. The year end is 31 December and all payments were made on time. Rent for the year ended 31 December is to be charged to profit or loss. What is the charge?

The rent charge is $21,600. The first two quarters cost $4,800 each, totalling $9,600, and the last two cost $6,000 each, totalling $12,000. The October payment covers the quarter to 31 December, so there is no prepayment or accrual.

  1. A$21,600Correct
  2. B$19,200
  3. C$24,000
  4. D$10,800

Explanation

Two quarters at $4,800 = 9,600 and two quarters at $6,000 = 12,000, total $21,600. Payments in advance on 1 October cover to 31 December, so no prepayment arises. Option C wrongly applies the new rate for all four quarters.

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