PRC-1 · Chapter 4 · Question 2 of 100
'BlueSky Logistics' paid an annual insurance premium of Rs. 120,000 on 1 August. The company's financial year ends on 31 December. What amount should be recorded as prepaid insurance in the statement of financial position?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Rs. 70,000
Explanation
The insurance covers 12 months. From 1 August to 31 December is 5 months, so the expense is 120,000 x (5/12) = Rs. 50,000. The remaining 7 months are prepaid: 120,000 x (7/12) = Rs. 70,000.
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