CA Foundation · Accounting · Theoretical Framework
Nair & Sons paid an insurance premium of ₹24,000 on 1 October 2024 for 12 months. The books are closed on 31 March 2025. Applying the matching concept, how much should be charged to the profit and loss account for the year ended 31 March 2025?
₹12,000 should be charged. The premium covers 12 months from 1 October 2024, and only six months fall before 31 March 2025, so half of ₹24,000 matches the year's revenue. The remaining ₹12,000 is carried forward as a prepaid expense.
- A₹12,000Correct
- B₹24,000
- C₹6,000
- D₹18,000
Explanation
The policy runs from 1 October 2024 to 30 September 2025, so 6 of 12 months fall in the year ended 31 March 2025. Expense = 24,000 × 6/12 = ₹12,000. The remaining ₹12,000 is prepaid insurance. Charging the whole ₹24,000 uses the cash paid and ignores matching.
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