Skip to content

ACCA Applied Knowledge · Financial Accounting · Statement of financial position

On 1 July, Lowe Co paid $12,000 for insurance covering the 12 months to 30 June of the following year. The year end is 31 December. Which statement correctly describes the treatment in the statement of financial position at 31 December?

Six months of the insurance cover, worth $6,000, relates to the period after 31 December. This unexpired portion is a prepayment and is shown as a current asset, because the benefit will be received within twelve months of the reporting date.

  1. AA current asset prepayment of $6,000Correct
  2. BA current liability accrual of $6,000
  3. CA current asset prepayment of $12,000
  4. DA non-current asset of $6,000

Explanation

Six of the twelve months of cover fall after the year end, so 6/12 x 12,000 = 6,000 relates to the next period. This is a prepayment, shown within current assets. It is not a liability because the company has paid in advance, and it is not non-current because the benefit is received within twelve months.

Did you get it right without looking?

One question tells you little. A timed set on Statement of financial position shows your real accuracy, how long you take and where you lose marks.

Practise Statement of financial positionFree diagnostic mock

More Statement of financial position questions