CMA Intermediate · Financial Accounting · Accounting Fundamentals
Rohan Traders, a sole proprietorship, paid an insurance premium of Rs 24,000 on 1 October 2025 for twelve months of cover. The books are closed on 31 March each year. What amount of prepaid insurance should appear in the Balance Sheet as at 31 March 2026?
The prepaid insurance is Rs 12,000. The premium covers twelve months from 1 October 2025, so six months remain unexpired at 31 March 2026. Six twelfths of Rs 24,000 is carried forward as a current asset, and the rest is charged to profit and loss.
- ARs 6,000
- BRs 12,000Correct
- CRs 18,000
- DRs 24,000
Explanation
Cover runs from 1 October 2025 to 30 September 2026. Six months (April to September 2026) fall in the next year. Prepaid = 24,000 x 6/12 = Rs 12,000. Rs 6,000 would result from counting only three months of unexpired cover.
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