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CMA Foundation · Fundamentals of Financial and Cost Accounting · Adjustment Entries and Rectification of Errors

Sharma Traders closes its books on 31 March. Rent paid during the year was ₹60,000, which includes ₹12,000 paid in advance for April to June of the next year. The rent expense to be charged to the Profit and Loss Account for the year is:

The rent expense for the year is ₹48,000. Of the ₹60,000 paid, ₹12,000 relates to the following year and is carried forward as prepaid rent, so it is deducted from the amount paid to get the current year's expense.

  1. A₹72,000
  2. B₹48,000Correct
  3. C₹60,000
  4. D₹12,000

Explanation

Rent paid is ₹60,000, of which ₹12,000 relates to the next year and is a prepaid expense (asset). Expense for the year = 60,000 - 12,000 = ₹48,000. Adding the prepaid amount (₹72,000) is the wrong-sign mistake.

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