ICAEW AF · Chapter 8 · Question 6 of 9
A business's year ends on 31 December. At 1 January it had an insurance prepayment of £1,150, covering the period to 30 September. On 1 October it paid £5,400 for insurance for the year to 30 September of the following year. What is the insurance expense for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) £2,500
Explanation
The opening prepayment of £1,150 is charged in this year because it covers January to September. Of the £5,400 paid on 1 October, 3/12 = £1,350 relates to October to December, and 9/12 = £4,050 is carried forward as a prepayment. Expense = £1,150 + £5,400 - £4,050 = £2,500.
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