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CMA Foundation · Fundamentals of Financial and Cost Accounting · Adjustment Entries and Rectification of Errors

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. A further Rs 18,000 was received on 1 January for the 3 months February to April. Rent received during the year ended 31 March, before adjustment, totals Rs 72,000 (Rs 54,000 + Rs 18,000). What is the rent income to be credited to Profit and Loss for the year?

Rent income for the year is Rs 66,000. The Rs 18,000 received covers three months at Rs 6,000 each, so one month, April, is income received in advance and is deducted from the Rs 72,000 received.

  1. ARs 72,000
  2. BRs 66,000Correct
  3. CRs 60,000
  4. DRs 54,000

Explanation

Rs 18,000 covers 3 months (Feb, Mar, Apr), so Rs 6,000 per month. February and March are earned (Rs 12,000) while April (Rs 6,000) is received in advance. Income = 72,000 - 6,000 = Rs 66,000. Option Rs 60,000 wrongly deducts two months.

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