CMA Foundation · Fundamentals of Financial and Cost Accounting · Adjustment Entries and Rectification of Errors
Mehta Enterprises pays insurance premium of Rs 24,000 annually on 1 October for the year starting that date. The books are closed on 31 March. The premium was paid on 1 October 2024. What is the prepaid insurance to be shown at 31 March 2025?
Prepaid insurance is Rs 12,000. The Rs 24,000 premium covers twelve months from 1 October 2024, and six months have expired by 31 March 2025, so the unexpired six months, half the premium, is carried forward as a prepaid asset.
- ARs 12,000Correct
- BRs 6,000
- CRs 18,000
- DRs 24,000
Explanation
Premium covers 1 Oct 2024 to 30 Sep 2025. Up to 31 March 2025, 6 months have expired; the remaining 6 months are prepaid. Prepaid = 24,000 x 6/12 = Rs 12,000. Rs 6,000 would wrongly use a 3-month period.
Did you get it right without looking?
One question tells you little. A timed set on Adjustment Entries and Rectification of Errors shows your real accuracy, how long you take and where you lose marks.
More Adjustment Entries and Rectification of Errors questions
- Before closing the books of Sharma Traders, a debtor Mr. Verma, owing Rs 8,000, is declared insolvent and the amount is to be written off as…
- Repairs to a machine costing ₹6,000 were debited to the Machinery account. Which statement is correct about the effect of this error?
- Rohan & Co. earns commission income. At the year-end 31 March, commission of Rs 8,000 for March has been earned but not yet received. How sh…
- Furniture purchased for Rs 12,000 was wrongly debited to Purchases Account. The correct rectifying journal entry is:
- Which of the following is NOT a typical adjusting entry at the year end?
- Mehta Traders sublets a godown and receives rent of Rs 54,000 on 1 October for the 6 months from 1 October to 31 March, and again on 1 April…