PRC-1 · Chapter 4 · Question 34 of 100
'Silver Oak Traders' pays an annual fire insurance premium of Rs. 180,000 every year on 1 September. Their financial year ends on 31 December. What is the prepaid insurance amount at the year-end?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Rs. 120,000
Explanation
The premium covers 12 months from 1 September to 31 August. At 31 December, 4 months have expired. The remaining 8 months (Jan to Aug) are prepaid: Rs. 180,000 x (8/12) = Rs. 120,000.
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