A rent payment of Rs 120,000 covers 12 months from 1 October. What amount is treated as rent expense for the year ending 31 December?
Correct answer: B. Rs 30,000
- A. Rs 10,000
- B. Rs 30,000
- C. Rs 90,000
- D. Rs 120,000
Explanation
The business uses the rented property for three months during the year. Monthly rent is Rs 10,000, so the current-period expense is Rs 30,000 and the remaining Rs 90,000 is prepaid.
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About Accruals, Prepayments and Provisions
Accruals and prepayments adjust income and expenses to the accounting period in which they are earned or incurred, following the matching principle. Provisions recognise expected obligations or losses when their amount or timing is uncertain, which distinguishes them from ordinary accruals and from general reserves.
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