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CSEET · Fundamentals of Accounting · Preparation of Final Accounts for Sole Proprietorship

Rent paid during the year ended 31 March 2025 was ₹48,000, which includes ₹6,000 paid in advance for April 2025. In the Profit and Loss Account for the year, rent should be charged at:

Rent chargeable to the Profit and Loss Account is ₹42,000, because the ₹6,000 paid in advance belongs to the next year. It is deducted from the ₹48,000 paid and shown as prepaid rent, a current asset, in the Balance Sheet.

  1. A₹54,000
  2. B₹48,000
  3. C₹42,000Correct
  4. D₹6,000

Explanation

Prepaid rent relates to the next year, so it is deducted from the amount paid: 48,000 - 6,000 = ₹42,000. Adding it (₹54,000) is the wrong-sign mistake. The prepaid amount appears as a current asset in the Balance Sheet.

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