Skip to content

ACCA Applied Knowledge · Financial Accounting · Statement of profit or loss and other comprehensive income

Lindo Co paid $27,000 for annual insurance covering 1 April Year 1 to 31 March Year 2. Its reporting date is 31 December Year 1. What is the insurance expense in profit or loss for the year ended 31 December Year 1, and the prepayment in the statement of financial position?

The expense is $20,250 and the prepayment is $6,750. Nine of the twelve months of cover fall within the year to 31 December, so nine-twelfths of $27,000 is expensed, and the remaining three months are carried forward as a current asset.

  1. AExpense $20,250; prepayment $6,750Correct
  2. BExpense $6,750; prepayment $20,250
  3. CExpense $27,000; prepayment nil
  4. DExpense $18,000; prepayment $9,000

Explanation

Nine months (April to December) of the 12-month policy relate to the year: 27,000 x 9/12 = 20,250 expense. The remaining three months, 27,000 x 3/12 = 6,750, is a prepayment. The option reversing these figures confuses expired and unexpired cover.

Did you get it right without looking?

One question tells you little. A timed set on Statement of profit or loss and other comprehensive income shows your real accuracy, how long you take and where you lose marks.

Practise Statement of profit or loss and other comprehensive incomeFree diagnostic mock

More Statement of profit or loss and other comprehensive income questions