CS Executive · Corporate Accounting and Financial Management · Introduction to Accounting
Sharma & Co. paid ₹24,000 on 1 January 2026 as insurance premium for the whole of calendar year 2026 and 2027 together (₹12,000 per year). Its accounting year ends on 31 March. Applying the accrual (matching) concept, what amount is charged to the profit and loss account for the year ended 31 March 2026?
₹3,000 is charged. The premium is ₹12,000 per year, or ₹1,000 per month, and only three months, January to March 2026, fall in the year ended 31 March 2026. The rest is a prepaid expense under the accrual concept.
- A₹24,000
- B₹12,000
- C₹6,000
- D₹3,000Correct
Explanation
Premium per year is ₹12,000, so per month ₹1,000. January to March 2026 is 3 months, giving ₹3,000 as the expense for the year. Charging ₹24,000 is wrong as it follows cash basis; ₹6,000 is wrong as it uses 6 months.
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