PRC-1 · Chapter 10 · Question 63 of 100
If an entity pays Rs. 12,000 for an annual maintenance contract starting on 1 May and its financial year ends on 31 December, what is the amount of the prepayment at year-end?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 4,000
Explanation
The contract covers 12 months (May to April). By Dec 31, 8 months have been consumed (May-Dec) and 4 months are prepaid (Jan-Apr). Prepayment = 12,000 x 4/12 = Rs. 4,000.
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