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CS Executive · Corporate Accounting and Financial Management · Introduction to Accounting

Verma Traders paid Rs 36,000 on 1 October 2025 as insurance premium for 12 months from that date. Its year ends on 31 March 2026. Applying the matching concept, what amount should be charged to the profit and loss account for the year ended 31 March 2026 and what is the prepaid amount?

Rs 18,000 is charged to profit and loss and Rs 18,000 is carried as prepaid insurance. The premium is Rs 3,000 a month, and only the six months from October to March fall in this year, so expense is matched to the period of benefit.

  1. ARs 36,000 charged; prepaid nil
  2. BRs 18,000 charged; prepaid Rs 18,000Correct
  3. CRs 21,000 charged; prepaid Rs 15,000
  4. DRs 15,000 charged; prepaid Rs 21,000

Explanation

The policy covers 12 months at Rs 36,000, i.e. Rs 3,000 per month. From October 2025 to March 2026 is 6 months, so expense is 6 x 3,000 = Rs 18,000. The remaining 6 months, Rs 18,000, is prepaid. Charging the full Rs 36,000 ignores matching with the period benefited.

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