CA Foundation · Accounting · Theoretical Framework
Gupta & Co. follows the mercantile system. For the year ended 31 March 2025, rent paid in cash was ₹66,000. This included ₹12,000 paid in advance for April 2025 and excluded ₹6,000 of March 2025 rent still unpaid. What is the rent expense for the year?
The rent expense is ₹60,000. Start with cash paid of ₹66,000, deduct the ₹12,000 prepaid for next year, and add the ₹6,000 outstanding for this year, since the accrual basis charges expenses of the period regardless of payment.
- A₹60,000Correct
- B₹72,000
- C₹48,000
- D₹66,000
Explanation
Expense = paid 66,000 - prepaid 12,000 + outstanding 6,000 = ₹60,000. Check: 11 months at 5,000... the logic is that only the current year's rent is charged. ₹48,000 results from subtracting both adjustments, and ₹72,000 from adding prepaid instead of subtracting it.
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