Question

Amount of Rs. 1,000 is paid on July 01, 2017 towards insurance premium. Therefore, amount belonging to the year ending March 31, 2018, will be ____.

• A. Rs. 400
• B. Rs. 1,000
• C. Rs. 250
• D. Rs. 300

Answer 1

The correct option is C Rs. 250

For the preparation of financial statements, it is necessary that all the adjustments arising out of the accrual basis of accounting are made at the end of the accounting period. Another important consideration in preparation of final accounts with adjustment, is the distinction between capital and revenue items. Entries which are recorded to give effect to these adjustments are known as adjusting entries. Final accounts represents true and fair view of the state of affairs of the business.

An amount of Rs. 1,000 is paid on July 01, 2017 towards premium. Any general insurance premium paid usually covers a period of 12 months.

Suppose the accounting period ends on March 31, 2018, one-fourth of the insurance premium is paid on July 01, 2017 which is Rs. 250.