Fire Insurance premium paid on 1st October 2011 for the year ended on 30th September, 2012 was Rs.2,400 and Fire Insurance premium paid on 1st October, 2012 for the year ending on 30th September, 2013 was Rs.3200. Fire Insurance premium paid as shown in the profit and loss account for the accounting year ended 31st December, 2012 would be__________.
Fire Insurance premium paid on 1st October 2011 for the year ended on 30th September, 2012 was Rs.2,400 and Fire Insurance premium paid on 1st October, 2012 for the year ending on 30th September, 2013 was Rs.3200. Fire Insurance premium paid as shown in the profit and loss account for the accounting year ended 31st December, 2012 would be__________.
The correct option is B Rs.2,600
Under the accrual basis of accounting, expenses are matched with the related revenues and/or are
reported when the expense occurs, not when the cash is paid. The result of accrual
accounting is an income
statement that better measures the profitability of a company during a specific
time period.
In the given question Rs. 2400 paid for the year ended on 30th September
2012 in which 9 months belongs to the accounting period ended on 2012 and Rs.
3200 for 30th September 2013 in which 3 months belongs to the accounting period
ended on 2012.
Hence insurance premium shown in P&L account would be as under:
=2400 X 9/12 + 3200 X 3/12
=2600
Under the accrual basis of accounting, expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.
In the given question Rs. 2400 paid for the year ended on 30th September 2012 in which 9 months belongs to the accounting period ended on 2012 and Rs. 3200 for 30th September 2013 in which 3 months belongs to the accounting period ended on 2012.
Hence insurance premium shown in P&L account would be as under:
=2400 X 9/12 + 3200 X 3/12
=2600
